Executive Summary / Key Takeaways

• Carvana has undergone a significant transformation, emerging as the most profitable and fastest-growing public automotive retailer by adjusted EBITDA margin, a testament to its vertically integrated e-commerce model.
• The company has set an ambitious long-term objective to achieve 3 million annual retail sales with 13.5% adjusted EBITDA margins within the next 5 to 10 years, prioritizing growth while maintaining operational efficiency.
• Technological differentiation, including AI-driven automation in logistics, finance, and customer experience, is a core competitive advantage, enabling superior efficiency and a differentiated customer offering.
• Recent financial performance, particularly in Q3 2025, showcases record revenue and adjusted EBITDA, strong SG&A leverage, and a significantly strengthened balance sheet with a net debt to trailing 12-month adjusted EBITDA ratio of 1.5x.
• Strategic capacity expansion through ADESA integrations and robust loan sale partnerships are critical enablers for future growth, allowing Carvana to scale its operations and enhance its competitive moat in a highly fragmented market.

The Carvana Revolution: Reshaping Automotive Retail

Carvana Co., founded in 2012, embarked on a mission to fundamentally change the way people buy and sell cars. By leveraging an innovative e-commerce platform, the company aimed to differentiate itself through unparalleled selection, a seamless customer experience, and superior value. This vision positioned Carvana as a digital disruptor in the vast U.S. automotive retail market, which saw approximately 37 million used auto transactions in 2024 and a total of about 56 million new and used car sales annually. Despite its rapid ascent, Carvana currently holds a modest market share, representing about 1.5% of the used car market and roughly 1% of the total U.S. car market, underscoring a significant runway for growth within a highly fragmented industry where the top 10 used auto retailers collectively account for less than 10% of the market.

Carvana's overarching strategy centers on a vertically integrated model that combines a comprehensive online sales experience with an efficient, in-house supply chain. This foundational strength, built over more than a decade, encompasses proprietary vehicle acquisition, inspection and reconditioning, a sophisticated online shopping interface, integrated financing, and a distinctive logistics and fulfillment network. The company's historical journey, marked by early strategic partnerships with entities like DriveTime for inspection centers and Ally for finance receivables, laid the groundwork for its current operational capabilities and competitive advantages.

Technological Edge: Fueling Efficiency and Customer Experience

At the heart of Carvana's competitive advantage lies its deep technological differentiation, which permeates every aspect of its operations and customer interaction. The company's proprietary e-commerce platform offers an intuitive online search and shopping experience, featuring patented automated photo technology that provides an annotated virtual vehicle tour, including 360-degree views and high-definition photography to highlight vehicle imperfections transparently. This technology enhances customer confidence and streamlines the buying process.

Carvana's proprietary loan origination platform is another critical differentiator. It allows customers to complete a short prequalification form and receive "nearly instantaneously" an interactive set of conditional financing terms for every vehicle in inventory, without impacting their credit until a purchase is pursued. This speed and transparency are key benefits over traditional financing methods. Furthermore, the company's proprietary logistics software is crucial for its nationwide delivery network, enabling the predictable and efficient transport of cars. This system dynamically optimizes for speed and cost, providing "highly accurate predictions of vehicle availability" and minimizing delays.

The impact of these technological advancements is quantifiable and directly translates into tangible benefits for both the company and its customers. For instance, Carvana has reduced customer delivery time by a day in the last five quarters through operational improvements. In Phoenix, a test market for optimizing various processes for speed, 40% of customers now receive same or next-day delivery, significantly higher than the 10% national average. This capability means "thousands of vehicles" can be purchased and delivered in hours, a compelling proposition in e-commerce. The efficiency gains extend to customer interactions, with over 30% of retail customers completing the entire purchase process without direct interaction with a customer advocate until delivery, a figure that rises to over 60% for customers selling their cars. This level of automation is built on deterministic decisions and well-organized, accessible data.

Carvana is also aggressively investing in new technological frontiers, particularly Artificial Intelligence (AI). Management views AI as a powerful technology, and Carvana's scale, deep data, deterministic processes, and vertical integration provide unique advantages in its application. Sebastian, the company's chatbot, is its most developed AI application, acting as a "brain" that integrates finance, scheduling, and search services to provide dynamic, intelligent responses. Internally, the company is developing "ambient agents"—AI agents with data-informed triggers—that can identify bugs, suggest solutions, write code, and even deploy it, a capability described as "sci-fi from the perspective of 2 years ago". These AI initiatives are expected to further enhance operational efficiency, lower costs, and improve customer satisfaction, strengthening Carvana's competitive moat and driving long-term growth.

Financial Momentum: A Story of Profitable Growth

Carvana's strategic and technological investments have culminated in a remarkable financial turnaround, positioning the company for sustained profitable growth. The third quarter of 2025 showcased record-breaking performance across key metrics. Retail units sold surged by 44% year-over-year to 155,941, driving revenue up by 55% to $5.647 billion. This performance pushed Carvana's annual revenue run rate past $20 billion for the first time, a significant milestone.

Profitability metrics also demonstrated substantial improvement. Net income reached $263 million, a $115 million increase year-over-year, translating to a 4.7% net income margin. GAAP operating income grew by $215 million to $552 million, achieving a 9.8% operating margin. Adjusted EBITDA, a key measure for the company, climbed by $208 million to $637 million, with an 11.3% margin. This consistent profitability, including four consecutive quarters within its long-term adjusted EBITDA margin range of 8% to 13.5%, established Carvana as the most profitable public automotive retailer in U.S. history by this metric, while simultaneously being the fastest-growing.

A deeper look into gross profit per unit (GPU) reveals the underlying operational dynamics. Non-GAAP retail GPU was $3,456 in Q3 2025, a slight decrease of $77 year-over-year, primarily due to higher retail depreciation rates. Non-GAAP wholesale GPU decreased by $168 to $866, influenced by higher wholesale depreciation rates and retail unit growth outpacing ADESA marketplace growth. Conversely, non-GAAP other GPU, which includes gains on loan sales and commissions from complementary products, increased by $63 to $3,040, driven by improved cost of funds and higher finance and Vehicle Service Contract (VSC) attach rates.

The company has also achieved significant leverage in its selling, general, and administrative (SG&A) expenses. A 44% increase in retail units sold in Q3 2025 led to a $319 reduction in non-GAAP SG&A expense per retail unit. The Carvana operations portion of SG&A decreased by $96 per retail unit due to operational efficiency initiatives, and the overhead portion saw a $314 reduction per retail unit due to leverage from increased sales volume.

Carvana's liquidity and balance sheet have also strengthened considerably. As of September 30, 2025, cash and cash equivalents stood at $2.142 billion, with total committed liquidity resources of $4.072 billion. The company has aggressively managed its debt, retiring $1.2 billion in corporate debt during 2024 and 2025. This proactive approach has driven its net debt to trailing 12-month adjusted EBITDA ratio down to 1.5x, representing its strongest financial position to date.

Furthermore, Carvana has expanded its loan sale partnerships, upsizing its Ally (ALLY) Master Purchase and Sale Agreement (Ally MPSA) commitment to $6 billion and securing two new $4 billion agreements with independent third-party purchasers, validating the strength of its vertically integrated finance platform.

Strategic Expansion and Operational Excellence

Carvana's path to sustained growth is paved by continuous strategic expansion and a relentless focus on operational excellence. A cornerstone of this strategy is the integration of ADESA locations, which significantly enhances the company's reconditioning and distribution capabilities. By Q3 2025, Carvana had added reconditioning capabilities to 15 ADESA locations, resulting in a total of 27 sites capable of handling both wholesale and retail operations. This expansion is critical for positioning inventory closer to customers, reducing delivery times, and improving overall efficiency. The existing inspection and reconditioning centers (IRCs) and auction locations collectively possess the capacity to inspect and recondition over 1 million vehicles per year at full utilization. The full integration of all ADESA mega-sites could eventually provide capacity for approximately 3 million retail units, representing eight times the current volume.

The company's vehicle acquisition strategy is also a key operational lever. Carvana primarily acquires its used vehicle inventory directly from customers, used car auctions, and wholesale suppliers. Acquiring vehicles directly from customers through trade-ins or one-way sales eliminates auction fees and provides a more diverse inventory set. This direct sourcing, coupled with its efficient reconditioning network, allows Carvana to be a "systematically better buyer of all cars".

Operational efficiency is further demonstrated by the expansion of same-day delivery services. Following successful testing in Phoenix, where 40% of customers now receive same or next-day delivery, Carvana has expanded this offering to major metropolitan areas including San Diego, Salt Lake City, San Francisco, and the greater Chicago area. These initiatives, driven by technology and process optimization, aim to enhance the customer experience and drive conversion.

Competitive Landscape: Outpacing the Pack

Carvana operates in a highly competitive yet fragmented U.S. automotive retail market. While it is currently the second-largest used car retailer, its ambition is to become the largest. Carvana's competitive advantages, or "moats," are deeply rooted in its vertically integrated, technology-driven model. This model allows for intimate knowledge of both the vehicle and the customer, a significant advantage over less integrated players. Needham's Mackenzie Holleran notes that Carvana "leads the shift from traditional auto retail through a digital-first, data-driven, capital-efficient, vertically integrated model".

Comparing Carvana to its key publicly traded direct competitors highlights its unique positioning:

• CarMax (KMX): CarMax operates an omnichannel model, combining online tools with a vast network of physical dealerships. While CarMax offers in-person inspections that appeal to some customers, Carvana's fully online platform excels in digital speed and accessibility. Carvana's technological innovation and streamlined transaction process provide an edge in customer convenience, whereas CarMax benefits from established inventory scale and physical trust. Carvana's aggressive growth rates contrast with CarMax's more stable, but potentially slower, expansion.
• AutoNation (AN): AutoNation, a large retailer of both new and used vehicles through traditional dealerships, offers comprehensive in-dealership services. Carvana's digital-first approach provides advantages in operational speed and potentially lower overhead costs through its virtual model. Carvana leads in technological integration and end-to-end service execution, while AutoNation's strength lies in its broad service offerings and established scale, which historically translated to stronger margins and cash flow.
• TrueCar (TRUE): TrueCar operates as an online platform connecting buyers with dealers, focusing on transparent pricing and partnerships. Carvana's vertically integrated model, handling sales, financing, and delivery directly, offers a more comprehensive and controlled customer experience compared to TrueCar's dealer-focused approach. Carvana's proprietary technology and integrated services drive higher customer engagement and retention, while TrueCar offers broader dealer access but with less direct transaction oversight.

Indirect competitors include traditional independent dealerships, online marketplaces like eBay Motors, and emerging mobility solutions such as ride-sharing services. While these alternatives can divert customers, Carvana's digital focus and operational resilience make it well-positioned to capture market share from less efficient models. The company's ability to leverage AI and data analytics further strengthens its competitive standing by enabling more efficient customer targeting and operational processes.

Outlook and Ambitious Targets

Carvana's management has articulated a clear and ambitious long-term objective: to achieve 3 million annual retail sales with 13.5% adjusted EBITDA margins within the next 5 to 10 years. This target reflects a strategic prioritization of growth over margin within "reasonable margin ranges," aiming to capitalize on the vast market opportunity. The company's confidence stems from its proven ability to unlock "fundamental gains" across its business, which it intends to share with customers through improved value and experience, thereby fueling further demand.

For the fourth quarter of 2025, Carvana expects retail units sold to be above 150,000, and full-year 2025 adjusted EBITDA to be at or above the high end of its previously communicated range of $2.0 billion to $2.2 billion. This guidance assumes a stable market environment and continued operational execution. Sequential changes in retail, wholesale, and other GPU in Q4 2025 are expected to be similar to last year's seasonal patterns, with other GPU reflecting the strategic decision to pass fundamental gains to customers via lower interest rates. Advertising expense in Q4 2025 is anticipated to be similar to or slightly higher than Q3 2025, as the company continues to invest in brand awareness and trust.

Risks and Resilience

Despite its strong momentum, Carvana faces inherent risks. Operational scaling remains a significant challenge, as growing to millions of units requires continuous effort across a complex business involving vehicle movement and personnel coordination. Reconditioning, in particular, is the most operationally intensive area, though ongoing ADESA integrations are "laying foundations for easier growth in the future".

Macroeconomic conditions, including potential downturns, also pose a risk. However, Carvana's management asserts the company is "well-prepared" due to its current profitability, robust cash balances, adaptive system, and business scalability. Concerns about subprime loan performance, which impacted industry-wide cohorts in 2022-2023, are mitigated by Carvana's tightened credit policies, resulting in its 2024-2025 loan originations performing "extremely well". The impact of tariffs on new car prices could potentially drive "substitution into used" vehicles, which Carvana expects to be positive, and tariffs did not materially affect its Q3 2025 financial results. Legal proceedings, including an SEC subpoena related to past short-seller allegations, represent ongoing, albeit manageable, risks.

Conclusion

Carvana's journey from a disruptive startup to an industry leader in both growth and profitability underscores the power of its vertically integrated, technology-driven business model. The company's relentless pursuit of operational efficiencies, strategic capacity expansion through ADESA integrations, and pioneering use of AI are not merely incremental improvements but foundational shifts that redefine the automotive retail experience. These efforts have culminated in robust financial performance, a significantly strengthened balance sheet, and a clear roadmap towards its ambitious long-term targets of 3 million annual retail sales and 13.5% adjusted EBITDA margins.

Carvana's competitive advantages, rooted in its digital-first approach and superior customer experience, position it to continue outpacing traditional and hybrid competitors in market share capture. While operational scaling and macroeconomic shifts present ongoing challenges, the company's demonstrated resilience and adaptive strategies suggest it is well-equipped to manage these risks. For investors, Carvana represents a compelling opportunity in a mature yet fragmented market, driven by technological leadership and a commitment to sustained, profitable expansion.