Carvana Stock Falls. Tariffs May Impact the Used-Car Retailer. — Barrons.com

By Nate Wolf

Carvana stock was sliding Friday, a day after President Donald Trump threw yet another curveball at the auto industry when he floated the idea of raising the current 25% tariff rate on foreign vehicles.

"To further defend our autoworkers, I imposed this 25% tariff on all foreign automobiles," Trump told reporters Thursday. "I might go up with that tariff in the not-too-distant future."

Tariffs that lift the prices of new vehicles may, in theory, be a boon for used-car dealers like Carvana — CEO Ernie Garcia has argued as much — but not everyone on Wall Street is so sure. Carvana shares, which have skyrocketed more than 190% over the last 12 months, "are due for a pause," analysts at J.P. Morgan wrote in a research note before stock markets opened Friday.

Right on cue, the stock slumped 6.2% to $299.25.

Tariffs are one reason J.P. Morgan is urging caution. Rather than inflating new-car prices alone, the levies — even at current levels — are likely to limit the supply of used vehicles and increase costs across the automotive landscape. "We continue to see any relative bump in used sales as temporary," the analysts wrote.

Beyond tariff risks, Carvana's gross margins could also get squeezed this quarter due in part to a downtick in the financing rates offered to customers. J.P. Morgan's analysts expect the company to report adjusted earnings before interest, taxes, depreciation, and amortization of $530 million for the current quarter, below both their prior estimate of $550 million and Wall Street's consensus call of $537 million.

Carvana, which reports second-quarter earnings on July 31, has beat analysts' expectations for Ebitda each of the last nine quarters, according to FactSet.

Barron's has reached out to Carvana for comment.

Despite pumping the brakes on Carvana, J.P. Morgan reiterated an Overweight rating for the stock and a $325 price target. The company's long-term advantages in the used-car space haven't changed, the analysts argued.

"We continue to see CVNA extending their differentiation vs peers, growing well above the market and maintaining elevated economics," they wrote.

Write to Nate Wolf at nate.wolf@barrons.com

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