How Fast Can Carvana Grow?
Background
Carvana is in the midst of one of the most remarkable (if not the most remarkable) stock recoveries in history, rising from a low of $3.90 to a high of over $290/share, about a 75x increase from late 2022 to early 2025.
When Carvana reported its Q4 2024 earnings, it gave vague 2025 guidance:
“Our results in 2024 position us well for a strong 2025. Looking forward, we expect significant growth in both retail units sold and Adjusted EBITDA in full year 2025, including a sequential increase in both retail units sold and Adjusted EBITDA in Q1 2025, assuming the environment remains stable. ”
This guidance was one of the primary catalysts for the stock falling about -40% from Carvana’s 2025 peak in February. The market did not take kindly to its vagueness.
We will try to digest this guidance. A sequential increase in units sold and Adjusted EBITDA follows normal seasonal patterns, so that part doesn’t reveal anything particularly interesting. “Significant growth in both retail units sold and Adjusted EBITDA in full year 2025” – isn’t revealing in any meaningful way, except that it compares to last year’s guidance of:
““For FY 2024, we expect to grow retail units sold and Adjusted EBITDA compared to FY 2023.”
What’s different is the use of the word “significant.”
This post will discuss how we break down Carvana’s potential for growth over the next few years which reveals growth rates that are, indeed, significant.
“Significant Growth”
On the surface, we could say that Carvana including “significant” for 2025 but excluding it for 2024 must mean that it expects faster growth in 2025 than in 2024. That seems like a reasonable interpretation and it will be validated by the analysis we show below.
Let’s get into the numbers a little bit. We will use Carvana’s production output observed over the last couple of years to inform our view of future volume. Let’s highlight some stats about Carvana’s production 2023, 2024, and the start of 2025. We utilize Clarity Markets’ data for this analysis.
In mid-February 2023 (after the holidays, before tax refund season), Carvana was producing about 4,300 cars per week.
In Mid-December 2023, before the holidays, Carvana was producing about 6,200 units per week, growth of 1,900 units per week from mid-February. On a per-IRC basis, that represented a production ramp of 2.6 incremental units per facility per week (1,912 units per week divided by 43.3 weeks).
We look at similar stats for 2024 and to start 2025, understanding that Carvana began integrating ADESA sites into the network in mid-2024 which adds a little complexity. Putting it all together, this is what we see:
Source: Clarity Markets Data and Recurve Capital Estimates
Let’s call out some highlights:
This is an illustrative example, not meant to be precise estimates. The main point of this exercise is to show what kind of growth gradual linear ramping in production volumes across the network can achieve for Carvana overall.
Blue numbers are hard-coded as actuals or estimates. Yellow boxes are output estimates of retail units sold using this illustrative exercise.
In this table we show a ramp of 4 units per IRC per week, plus incremental contributions from ADESA Megasites ramping up. Four units of incremental production per site is is below what Carvana achieved in 2024 even though 2025 is purported to be a year of “significant” growth. The numbers really start popping off the page if we assume a faster ramp than 2024.
These numbers feel reasonably achievable because they require steady growth in unit production over time – not some heroic, exponential growth assumptions.
We believe Carvana’s pace of hiring suggests a steady effort to scale over time – not a bursty one. Starting in 2H 2024, we saw an escalation of hiring activity, followed by pretty steady effort through today.
Source: Carvana.com, Recurve Capital Estimates
Hiring shows us gross activity, but we do not know if there have been material changes in attrition which would impact net headcount additions. On balance, we believe attrition has declined over the above period as operations have improved and there have been more opportunities for career advancement within IRCs as each facility adds more volume.
As seen in the hiring chart above, Carvana showed a substantial increase in job openings in 2H 2024. The table above shows Mid-Feb to Mid-Dec ramping, but Carvana showed a more material ramp starting in July. In the last 6 months of 2024, weekly production rose from around 8,000 to around 12,000 (a ramp of 4,000 units across 18 IRCs and 6 new Megasites over about 20 weeks, which we believe is closer to 10 units per IRC per week of incremental production).
What Do Consensus Estimates Imply?
Consensus estimates in 2025 call for about 520,000 units, or 25% growth (below 2024’s 33% growth). As we can see from the table above, Carvana was producing well above that rate in mid-December 2024 and mid-February 2025, and that pace continues today, with YTD listings pacing about +70% y/y through early March 2025 and unit volumes pacing +48% y/y. To achieve the consensus unit estimate, Carvana wouldn’t just have to go flat for the rest of the year – it would have to shrink weekly production and unit sales materially from current levels.
We estimate about 100,000 cars being sold through the first 10 weeks of the year (which includes the holiday-affected early January period), or 10,000/week on average. However, for the last 6 weeks, Carvana has averaged about 12,000 units/week.
To reach 520,000 units for the remainder of the year, Carvana would have to average 10,000 units/week for the remainder of the year, nearly a -20% reduction from current run-rates.
Illustratively, if we take the 100,000 units sold YTD and assume flat sales for the rest of the year at 12,000/week for the remaining 42 weeks of the year, Carvana would sell 604,000 units for the year.
With steady hiring and the addition of ADESA Megasites throughout the year, it’s far more likely that Carvana will increase production and, consequently, accelerate weekly unit sales from current levels. It is unreasonable to assume that Carvana will reduce its production rates as it turns its growth dial higher (see below).
It goes without saying that we expect consensus estimates to rise materially as Carvana’s growth ambitions and capabilities become clearer.
What we Learned at the Haines City Event
We have visited a handful of Carvana facilities, including Haines City twice (November 2023 and March 2025). Let’s highlight some of our takeaways from the event last week:
1. We learned that on a scale of 1-10, Carvana’s growth engine was dialed to a “3” last year. They expect to be >3 but <8 in 2025.
2. The largest constraint Carvana is dealing with is not supply of vehicles or demand for those vehicles, but local labor supply. There are a few ways for Carvana to solve this problem as they increase aggregate production, but they seem to be focused on an elegant one that creates wins on multiple dimensions: ADESA Megasite conversions.
When Carvana converts an ADESA site into a Carvana retail reconditioning Megasite, it converts a handful of auction lanes into inspection lanes. It installs other Carvana technology and equipment, powered by its proprietary CARLI software. The process takes 6-7 weeks from announcement to integration and the company is a bit cagey about its production capacity at these sites, but it seems to be somewhere in the 10,000-20,000 range when fully ramped. These sites cost $2-3M each and are the “capital light” expansions available to Carvana today before having to construct new facilities to unlock the full 2 million unit expansion within the ADESA footprint. Rough math: if $2.5M of investment increases capacity by 10,000 units, Carvana could generate an incremental $50M of annual EBITDA from each of those sites once they are fully ramped.
Megasites are an elegant solution for Carvana for multiple reasons:
They open up new labor pools in new locations.
They localize more finished inventory in more distributed locations, unlocking faster delivery times and potentially more selection in those areas.
They reduce long haul trucking routes to/from those Megasite regions.
They add to system-wide production capacity.
Adding Megasites has multiple beneficial impacts to the business: (a) they add capacity while not stressing utilization or capacity constraints elsewhere in the network, (b) they improve conversion by reducing delivery times, (c) they generate cost savings by reducing logistics costs, and (d) all of the above improves customer satisfaction.
3. Carvana grew retail units in 2024 primarily by improving conversion. In particular, it improved conversion by (a) reducing shipping times and (b) improving selection (i.e. growing inventory). Carvana was able to grow unit sales +33% y/y while keeping advertising expenses flat – a remarkable outcome. There appear to be additional gains from improving conversion by “improving the offering,” as the company describes. This is the best way to grow – by converting existing traffic at improving rates by increasing value delivered to customers across multiple dimensions and extending Carvana’s lead vs. the field. We expect future fundamental gains to be reinvested into conversion-enhancing initiatives like growing inventory (hence why listings are outpacing units YTD) and reducing shipping times. Additionally, we expect Carvana to generate significant leverage on advertising expenses again in the coming year because of this dynamic.
Multiple members of the Carvana team noted that the company was able to grow at a “comfortable” pace in 2024. While 33% growth in 2024 was high in absolute terms and well above industry growth, 416,000 retail units represented only about 30% of current production capacity (based on the current asset footprint) and less than 15% of expandable capacity. In its prior era of growth (pre-Covid), Carvana was growing units rapidly while simultaneously building its nationally scaled production and logistics machine. In the current era of growth, Carvana’s path is easier - most of the effort requires staffing up existing assets and infrastructure. Increasing asset utilization allows for significant inherent operating leverage, but we expect the Carvana team to pursue a growth strategy that balances the long-term benefits of scale with long-term benefits of fundamental improvements in unit economics, customer value, and foundational capabilities. There may be puts and takes along the way in individual KPIs, but there should be significant growth and free cash flow throughout the journey.
4. Over the last 18 months we’ve been able to see a time series of technology deployments within IRCs. 18 months ago, Carvana had high-volume facilities but it was still using older systems and processes which were inherently inefficient. For example, it was still using paper inspection reports and manual data entry. Ordering parts had been reduced from 21 clicks to 3 clicks - a big improvement - but now everything is digitized and parts are ordered automatically in many cases. The company’s CARLI software platform captures massive volumes of data across every part of the process, arming Carvana with more data-driven insights that it can mine for additional efficiencies. In late 2023 there were some obvious of efficiencies yet to come; in 2025, Carvana’s differentiated and scalable tech-enabled platform is much more evident - but they aren’t slowing down their innovation. They now have the the tech and data infrastructure in place to drive further gains in the business.
Closing
Given Carvana’s impressive process improvements we’ve seen already, we expect most gains in cost of production and logistics to be given back to customers through conversion-improving investments like reducing delivery times and improving selection. We do not expect significant movement in non-GAAP GPU, but impressive operating leverage of SG&A expenses, resulting in strong growth in Adjusted EBITDA and Free Cash Flow.
We believe the earnings algorithm in Carvana’s business model generates about $5,000 of incremental EBITDA per unit. Our analysis of the way Carvana is ramping its production and logistics machine gives us elevated confidence in Carvana’s ability to produce meaningful growth in revenues and very “significant” growth in adjusted EBITDA and Free Cash Flow. Using the data from the production table at the beginning of this post, we run the math on what $5,000 of incremental EBITDA per unit translates into:
Source: Carvana Investor Relations, Recurve Capital Estimates
These numbers certainly qualify for “significant” growth, especially in relation to consensus estimates for about $1,850M of Adjusted EBITDA in 2025. However, the qualifier Carvana used in its guidance (“assuming the environment remains stable”) is important, especially in light of the volatility in the economy in the early days of the Trump administration. These are not our precise estimates, but again they are shared to be illustrative to show the earnings power inherent in Carvana’s business model.
Daily or hourly changes in fiscal and trade policy may have a downstream impact on overall GDP growth and consumer demand which could result in a more conservative growth plan for Carvana during 2025. Nevertheless, Carvana’s value proposition to customers is strengthening and it should be able to significantly outgrow the market, take share, and generate substantial cash flow - even in a weaker environment.
