J.P. Morgan: Carvana’s third-quarter vehicle sales grew 39%, but profit per vehicle fell as rising expenses offset gross profit improvement

Why do profit results still diverge despite surging sales?

In the third quarter of 2026, Carvana sold approximately 217 thousand used vehicles at retail, up 39% year over year and broadly in line with JPMorgan’s estimate. Adjusted EBITDA was 800 million dollars, above the market consensus of 789 million dollars but below the bank’s estimate of 825 million dollars.
On a non-GAAP basis, total gross profit per retail vehicle was about 200 dollars above the bank’s estimate, but selling, general and administrative expenses (SG&A) were about 300 dollars higher, offsetting the gross profit advantage. Adjusted EBITDA per vehicle was approximately 3680 dollars, down about 10% year over year; management said fuel and benchmark interest rates had a combined adverse impact of about 200 dollars per vehicle.

Third-quarter other gross profit per vehicle was approximately 2700 dollars, about 175 dollars above JPMorgan’s estimate. Approximately 75 dollars of the difference came from ancillary product sales, with the rest mainly from better-than-expected loan sale margins. The bank views the ancillary product improvement as sustainable and sees further room for improvement relative to the average for publicly listed dealers.
Carvana began passing previously deferred interest-rate increases on to loan customers in the third quarter. Other gross profit per vehicle rose about 75 dollars sequentially but remained down about 300 dollars year over year. After benchmark rates rose sharply in September, JPMorgan expects gross profit per vehicle related to loan sales to decline about 100 dollars sequentially in the fourth quarter, then gradually return to normal in the second half of 2027. Interest-rate pass-through typically occurs with a lag and may not be complete.

Third-quarter SG&A rose approximately 14% sequentially and was about 8% above JPMorgan’s estimate. Advertising spending was 152 million dollars, above the bank’s estimate of 132 million dollars; logistics, fuel and headquarters expenses, including AI investment, also had an impact.
Management described some advertising and headquarters spending as temporary fluctuations related to maintaining the operating team’s workload during a period of capacity constraints. JPMorgan expects fourth-quarter SG&A to rise approximately 3% sequentially, but the company says advertising investment will continue. Whether expenses can be spread over a growing scale is key to margin recovery.
The bank lowered its fourth-quarter 2026 adjusted EBITDA forecast from 695 million dollars to 680 million dollars, but raised its 2027 forecast from 4.125 billion dollars to 4.2 billion dollars. It sees the improvement in other gross profit as more sustainable and some expense pressures as temporary; its assumption of 35% year-over-year retail volume growth in 2027 is unchanged.

Carvana said reconditioning output exceeded 200 thousand vehicles for the first time in the third quarter and was slightly above retail sales, but inventory immediately available for sale on its website still could not keep pace with sales, leaving capacity expansion a constraint on growth. In the quarter, the company also integrated retail production at two ADESA sites; three more sites are under construction and expected to begin production in 2027.
Assuming a stable environment, the company guides for sequential growth in fourth-quarter retail sales and 2026 adjusted EBITDA at the high end of the 2.7 billion to 3 billion dollar range. Starting with its fourth-quarter 2026 results, the company will stop providing quarterly and annual guidance. From 2027, it will primarily report GAAP metrics, with medium-term targets of annual retail sales of 3 million vehicles and an operating margin of 12.5% between 2030 and 2035.

The bank believes Carvana’s infrastructure and ADESA auction network can help it continue gaining market share and maintain relatively high profit per vehicle. On the bank’s adjusted comparable basis, Carvana’s EBITDA per retail vehicle was approximately 3700 dollars in 2025, compared with approximately 1300 dollars for peer CarMax in its corresponding fiscal year; financing penetration and delivery profits are important differences.
The US Securities and Exchange Commission concluded its investigation related to a 2025 short-seller report in September 2026 and said it did not intend to recommend enforcement action. JPMorgan maintained its overweight rating and December 2027 price target of 100 dollars; its valuation uses approximately 20 times forecast 2028 EBITDA while taking business cyclicality into account.