Carvana plans to lay off about 1,500 people, or 8% of its workforce, following a freefall in the company’s stock this year and concerns around its long-term trajectory, according to an internal message first obtained by CNBC’s Scott Wapner.
The email from Carvana CEO Ernie Garcia, titled “Today is a hard day,” cites economic headwinds including higher financing costs and delayed car purchasing. He says the company “failed to accurately predict how this would all play out and the impact it would have on our business.”
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“Today is a difficult day. The world around us has continued to get tougher and to do what is best for the business, we have to make some painful choices to adapt,” Garcia wrote in the email.
The lay offs add to a growing number of tech-focused job cuts amid rising interest rates, inflation and fears of an economic downturn. For Carvana, it also follows rapid growth but some missteps during the coronavirus pandemic to better capitalize on an unprecedently strong used-vehicle market during the coronavirus pandemic.
Shares of the company were down 7% by midday trading Friday. Shares of Carvana have plummeted by about 97% this year after reaching an all-time intraday high of $376.83 per share on Aug. 10, 2021.
A spokeswoman for Carvana confirmed the authenticity of the letter but declined further comment.
The layoffs mainly impact employees in Carvana’s corporate and tech departments, according to the letter. Garcia said all employees in those units would receive emails with information about whether they are impacted by the cuts or not.
“To those impacted, I am sorry,” Garcia said. “As you all know, we made a similar decision to this one in May. It is fair to ask why this is happening again, and yet I am not sure I can answer it as clearly as you deserve.”
The layoffs come two weeks after a recent stock selloff following the company missing Wall Street’s top- and bottom-line expectations for the third quarter. The company reported declines in revenue, profit and sales compared with a year earlier.
Carvana grew exponentially during the coronavirus pandemic, as shoppers shifted to online purchasing rather than visiting a dealership, with the promise of hassle-free selling and purchasing of used vehicles at a customer’s home.
But Carvana did not have enough vehicles to meet the surge in consumer demand or the facilities and employees to process the vehicles it did have in stock. That led Carvana to purchase ADESA and a record number of vehicles amid sky-high prices as demand slowed amid rising interest rates and recessionary fears.
Following the third-quarter earnings, Morgan Stanley pulled its rating and price target for the stock. Analyst Adam Jonas cited deterioration in the used car market, company’s debt and a volatile funding environment for the change.