Carvana plans big expansion

Carvana wants to sell as many as 165,000 vehicles this year — a target that would be a 75 percent increase from 2018 — as the online used-vehicle upstart moves toward a long-term ambition of selling 2 million cars and trucks a year.

One avenue to getting to the 2019 goal: expanding to at least 50 more markets, maybe up to 60. Carvana is in expansion mode, operating in 100 markets as of last week after ending 2018 in 85. While the retailer is still far from the 2 million sales mark, that goal, announced late last year, is part of the company's mantra.

"We're building a product our customers love, and we have incredible people who love building and delivering it," CEO Ernie Garcia said last week after Carvana announced fourth- quarter earnings. "If we do our jobs from here, those same two forces will drive us to our goal of selling 2 million-plus units per year."

But the retailer is still sacrificing profits for scale. Carvana's quarterly and full-year results included triple-digit revenue growth but widening losses. Carvana went public in April 2017 and has yet to turn a profit. Last week it claimed to be the fastest-growing automotive retailer by units in 2018, selling 94,108 cars and trucks for 113 percent growth from 2017.

Carvana has provided no timeline for reaching 2 million annual sales. Based on today's market, such a number would make Carvana the largest vehicle retailer in the country. CarMax and AutoNation don't retail even 1 million vehicles annually.

Garcia acknowledged that getting to 2 million annual sales would require Carvana to grow 20 times its current size. But he noted that just 3½ years ago, Carvana was one-twentieth the size it is today.

"The next 20 times undoubtedly will be harder than the last, but that is a pretty interesting statistic that speaks to the power of our customer offering and to the power of the growth it has generated," Garcia said.

Carvana's inspection and reconditioning centers will play a key role in supporting the growth plans, he said.

To carry more inventory and achieve faster shipping times, the company plans this year to add two of the centers, including one in Cleveland, by converting facilities once operated by another retailer. Carvana said it will announce the location of the other center this spring. The retailer also will begin construction in 2019 of yet another center.

Carvana operates five such centers. When up and running, all eight centers are expected to have an annual capacity of 400,000 vehicles.

Carvana forecasts 2019 revenue of up to $3.5 billion, an increase of as much as 79 percent from last year. In 2018, revenue increased 128 percent to $1.96 billion. The company posted net losses of $86.4 million in last year's fourth quarter and $254.7 million for the full year, both bigger losses than their year-earlier comparables.