Used-car giant Carvana Co. (CVNA) is quietly applying its digitally-focused, no-haggle playbook to the new car market, a strategic pivot that threatens to upend the decades-old dealership model. The company is leveraging a period of record growth to test its disruptive model against the tightly regulated and politically protected world of new vehicle sales, starting with a single dealership in Arizona.
The move is a direct response to widespread consumer frustration with the traditional car-buying process. Joshua Higginbotham, a 43-year-old in Kansas City, recently bought a new $51,000 Jeep Wrangler from his living room through Carvana after swearing off dealerships. "I don’t want to spend a whole day in a dealership, and they always like to make it take an entire day," Higginbotham said, an experience that resonates with many buyers.
Carvana is expanding from a position of financial strength. The company just posted its sixth consecutive quarter of at least 40% year-over-year growth in retail units sold, reaching a record 187,393 in Q1 2026. This drove revenue up 52% to $6.43 billion, smashing consensus estimates by over $350 million and generating a record $672 million in adjusted EBITDA. As of April, its Casa Grande, Arizona location was the top-selling dealer in the U.S. for Chrysler, Jeep, Ram, and Dodge brands.
At stake is a multi-trillion dollar new car market dominated by franchise laws that protect incumbent dealers. Carvana is betting that its frictionless online model can overcome these legal moats and capture a significant share of buyers fed up with the status quo. Success would validate its entire business model at a new scale, but failure risks a costly battle with a powerful dealership lobby and potential damage to its brand if execution falters.
A Growth Story With Cracks?
The bull case for Carvana is built on compounding growth and improving economics at scale. With 17 of 26 analysts rating the stock a buy or strong buy and a Wall Street mean price target of around $93—implying roughly 38% upside from its May 15 price of $67—conviction is high. The company's own internal models project a path to selling 3 million cars per year.
However, scaling a vehicle business is operationally complex, and cracks have appeared. The company’s gross profit per unit declined in Q1 due to higher reconditioning costs. More concerning for its brand reputation are customer complaints regarding vehicle quality. One recent buyer reported purchasing a 2024 Nissan Z from Carvana, only to discover undisclosed engine modifications, a knocking sound, and metal shavings in the oil. According to the post, Carvana relisted the vehicle shortly after it was returned, raising questions about its inspection and reconditioning process.
These quality control issues in its core used-car business highlight the operational risks of expanding into an even more complex new-car market. While Carvana fixed a broader reconditioning inefficiency in Q1 using new AI-powered tools, ensuring the quality of every single unit remains a critical challenge.
For investors, the new-car initiative represents a significant, high-risk, high-reward variable. The TIKR financial modeling platform's base case values Carvana at $128 per share by December 2030, an upside of over 90%. This valuation assumes the company can continue its growth trajectory while expanding margins. Carvana's venture into new cars will be a key test of whether it can disrupt another segment of the auto industry or if the regulatory and operational hurdles of the dealership world are too formidable to overcome.
This article is for informational purposes only and does not constitute investment advice.
