Carvana Expands New Car Sales Reach to Half of US Population, BTIG Reports

Carvana has significantly expanded its new vehicle retail operations, achieving a market reach that covers up to half of the U.S. population through just seven Chrysler, Dodge, Jeep, and Ram dealerships. The development, highlighted in a Friday note from investment firm BTIG, showcases the efficiency of the company's established logistics network.

Strategic Rollout

Following an initial launch of its new car strategy in mid-June at a Dallas dealership, Carvana has since added a new car filter to its website. In a market analysis, BTIG found that new vehicle inventory was available with free shipping in 15 of 16 major U.S. metropolitan areas it searched.

BTIG noted that this broad coverage from a small physical footprint is a key competitive advantage. To achieve a similar reach, a traditional dealership group would typically require between 100 and 150 individual stores, according to the firm's analysis.

Financial Projections and Constraints

BTIG estimates that the gross profit per unit (GPU) on these new cars will range from $5,500 to $7,500. This figure includes an estimated $1,500 to $2,000 generated from parts and service operations associated with the dealerships.

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However, the firm projects new cars will account for less than 10% of Carvana's total unit sales, even in a high-volume scenario. As a result, the new venture is expected to be only modestly dilutive to the company's overall GPU, by less than 3%.

Market Context

The expansion is not without limitations. Carvana's new car inventory is currently tied to Stellantis brands, which hold an 8% share of the new car market. The source also notes that Stellantis has limited the number of dealerships Carvana can acquire within a 12-month period.

Despite these constraints, BTIG pointed to Carvana's internal data showing that approximately 75% of its new car customers were initially shopping for used vehicles. This suggests the company may be expanding the total market for new cars rather than just capturing existing market share. The dealerships also provide ancillary benefits, including a source for used inventory and consistent cash flow from service operations.