It has become fashionable to compare Tesla’s market capitalization to other automakers (it’s bigger than all of them) or S&P 500 constituents (TSLA would be in the top 10, as of today) or even entire countries (Ireland and Israel). And fair enough… TSLA has been a great stock.
But consider that Carvana (symbol CVNA), an online used car platform, has a market cap of $35 billion, higher than Ford ($27 billion) and coming up on GM ($41 billion).
Or look at Vroom (symbol VRM), another used car ecommerce platform we profiled when it went public back in June, which has a $7 billion market cap, larger than Goodyear Tire ($2.2 billion) and close to Borgwarner ($8 billion).
Last example: Carmax, the granddaddy of the public company used car business, with a market cap of $17 billion and up 21% this year. That’s more than Genuine Parts ($13 billion), which owns NAPA, the country’s largest supplier of automotive replacement parts.
Before you dismiss all this as just 3 more examples of the market nonsensically buying the latest COVID play (Americans buying cheap used cars to avoid mass transit), look at this chart. It is the Manheim Used Vehicle Value Index back to 1995, which tracks prices paid at auctions across the US by dealers for pre-owned cars and light trucks:
We’ve been covering the US auto industry since before this graph even starts, and we’ve never seen anything like this. A few data points (link to the Manheim website below):
- Used vehicle prices are up 15.4% since January and +15.6% since last August.
- August prices are up 3.4% from July.
- Used car/truck inventories at retail are currently an estimated 38 days supply. The norm is 44 days and combined with wholesale inventories running only inline (23 days now, 24 days average), it seems like used car prices have further to run.
The bottom line here, in an apples-to-oranges sort of way, is that the typical American used car or truck has appreciated more in value during 2020 than the S&P 500 and the 1-year comparison is really, really close.
Two comments to close this out:
#1 Macro: rising used car prices are a very, very good sign for the US economy. They lift trade-in values, which in turn spurs new vehicle sales. And even a used car/truck is still the second most expensive thing most people will ever buy, so quickly rising prices means durable good demand is robust. Also, Manheim noted in their latest data release that “luxury cars and pickup trucks outperformed the overall market, while most other major segments underperformed…” That means the price comps we’ve reviewed here are not just cheap low end vehicles getting less cheap.
#2 Micro: now you know why Carvana and the other companies mentioned above are doing so well. Demand for used cars is strong, and pricing is even better. A great combination for companies that either provide ecommerce platforms or actually retail used cars. Their future returns will depend on how long used vehicle demand/pricing keep moving higher, but at least now their returns to date make some sense.
Manheim Used Car Index: https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html