Bank of America shifted its rating on Carvana Co. (NYSE:CVNA) to Neutral on Monday, signaling a more cautious near-term outlook for the online used-car retailer.
The move reflects a mix of macroeconomic pressures and industry dynamics that have tempered earlier optimism, according to a note from the bank. While Carvana has executed well operationally, rising two-year US Treasury yields, higher gasoline prices, and intensifying competition are weighing on potential near-term gains.
“Recent macro and industry developments make the near-term risk/reward look more balanced,” BofA analysts wrote. “Despite management’s strong execution, we see headwinds that could limit a rapid recovery in gross profit per unit and unit growth.”
The bank highlighted four emerging challenges: the impact of rising short-term rates on financing spreads, aggressive margin competition from key rivals, tempered expectations for year-over-year unit growth, and younger consumers’ greater exposure to higher fuel costs. Notably, nearly 44% of Carvana’s mobile app users are under 35, a demographic particularly sensitive to gasoline price spikes.
However, BofA remained confident in Carvana’s long-term growth potential. The company is on track to become the largest independent US car dealer, with 7.5% market share in legacy hubs such as Phoenix and Atlanta. Analysts also pointed to strong leverage on selling, general, and administrative expenses and continued strength in non-prime loan performance as positive indicators.
“Near-term risks are balanced, but the long-term opportunity remains intact,” BofA wrote, noting that Carvana’s refinancing options and demographic advantages could support sustained growth.
The firm set a new price target of $360, down from $400, compared with Carvana’s Monday morning stock price of $313.91.