Carvana is laying off about 1,500 people, or 8% of its workforce, Friday following a freefall in the company’s stock this year, a weakening used vehicle market and concerns around the company’s 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 Friday email to employees.
The layoffs add to a growing number of tech-focused job cuts amid rising interest rates, persistent 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 5% 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 as well as some operational roles where it is “eliminating roles, locations or shifts to match our size with the current environment,” according to the letter.
Garcia said impacted employees will receive separation and severance pay, extended healthcare coverage for three months and other other benefits.
“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.”
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.
The layoffs come two weeks after a recent stock selloff after the company missed 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.
Morgan Stanley pulled its rating and price target for the stock following the results. Analyst Adam Jonas cited deterioration in the used car market, company’s debt and a volatile funding environment for the change.
Read the full email from Carvana CEO Ernie Garcia: