The quarter ending June 30 was a crucial time for Carvana to work on the factors it can control, such as managing its cash spend, analysts said: If it efficiently cut expenses, it will be better able to handle a potential lull in demand. Carvana did cut 2,500 operations jobs mid-quarter in an attempt to reduce expenses. But it also took on more debt to fund its acquisition of the ADESA U.S. wholesale auction business from KAR Global.
"The fact that they allowed it to get to this situation is not encouraging, and, unfortunately, it is a pivotal quarter around expense control," Pierce said.
At the moment, expense control is requisite for the company and its shot at future profitability, Pierce said, because "there's not going to be a ton of upside around units and unit growth."
And because Carvana's earnings model also depends on per-vehicle profit, the company will likely continue to target pulling in more money for each vehicle it sells, Arthur said.
Carvana reported total gross profit per vehicle of $3,656 in the first quarter of 2021. That fell to $2,833 in the first quarter of 2022 after the company sold fewer cars than expected, punching up costs per vehicle.
Vroom and Shift this year said they, too, aim to reduce costs. In May, Vroom indicated it would cut marketing expenses as part of its attempt to realign for profitable growth. It also didn't rule out a work force reduction.
Shift said its cash use in future quarters would likely be lower than it was in the first quarter, when it had several one-time costs. It has also listed a going-concern warning in federal filings. Sharon Zackfia, who covers all three online used-vehicle sellers as an analyst at investment bank William Blair, previously told Automotive News that Shift likely has resources to get through 2023, when the market may normalize.