Why Is Carvana Stock Crashing? Will the Used Car Giant Crash for Good?

If you’ve tried selling a used car in the past few years, you’re probably familiar with Carvana. They offer services where they’ll buy your car and come pick it up. Additionally, if you live in a big city or have been to one in the past few years, you’ve likely seen the Carvana used car vending machines. The concept is a great one, but the company is having some issues. Right now, Carvana stock (NYSE: CVNA) is down over 73 percent from this time last year. What gives?

Supply chain issues are taking a huge toll on this massive used car supermarket

Carvana tower vending machine with Porsche Boxster on top row
An eight-story car vending machine from Carvana | MARK RALSTON/AFP via Getty Images

According to The Motley Fool, Carvana is suffering for the same reason many new car lots are sitting empty, and the price of used cars have gone through the roof; supply chain issues.

However, one might think the insane demand for used cars would benefit Carvana, considering that’s what it sells. Unfortunately for Carvana, though, the supply chain issues and lack of new cars are making owners of used cars hang on to them longer. Additionally, if you’ve ever gotten an offer on a used car from Carvana, you’ll likely find that it’s a bit under the amount of money you’d like to get for it. So, if nobody is selling the company cars, it doesn’t have any to sell. In turn, no money is being made.

At this time last year, Carvana stock was worth a hair under $240 per share. Now, though, the stock sits at just $64 a share as of April 27th, 2022. This reflects a decrease of over 73 percent year to date.

An eight story car vending machine, operated by the online used car dealer Carvana, that dispenses purchased cars to customers is seen in Huntington Beach, California
Carvana vending machine | MARK RALSTON/AFP via Getty Images

Carvana posted a first-quarter loss of $506 million for 2022. That reflects a loss of $2.89 per share compared to last year’s $0.46 per share. The Motley Fool reports that Carvana announced it would sell $1 billion in stock, which it upsized. Then, it announced it would sell another $2.3 billion in unsecured debt.

Though the massive drop in stock value is a bit unsettling for investors, the freed-up money should give the company a bit of flexibility in an effort to recover from this.

Is Carvana going to go under?

Chair Maria Cantwell , D-Wash., holds semiconductor chips while talking with Pat Gelsinger, CEO of Intel Corporation
Semiconductor chip | Tom Williams/CQ-Roll Call, Inc via Getty Images

Obviously, nobody has an official answer there. However, the ongoing supply chain issues and semiconductor chip shortage are not going to make this an easy task for the used car giant.

With the ongoing war between Ukraine and Russia, the production and distribution of a massive portion of the world’s supply of neon gas is entirely shut down. Neon is imperative in the production of silicon semiconductor chips. This is a problem that is affecting virtually every portion of the automotive industry.

Worse still is the recent shutdowns in production in China due to rising cases of Covid-19. This put the production of semiconductors and vehicle components even further behind schedule, which is certainly not beneficial to the situation.

Ultimately, it’s hard to say whether this is going to negatively impact Carvana in the long term. Similarly, Carmax stock is down over 30 percent compared to this time last year. All the world can do is wait and see what happens.\

RELATED: What are the Pros and Cons of Buying a Car from Carvana?