Carvana Co. (CVNA) Earnings Call Transcript & Summary

Okay. Let's get started.

Let's do it.

Ernie Garcia, thanks very much, President and CEO and Chairman of Carvana. Ernie and I have had a number of these fireside chats. Sometimes you wear socks, sometimes you don't wear socks.

Good memory. I wore socks because you called me out last time.

Oh, come on.

I did. I did.

Your ankles are fired, though. And we have a full room as well. A lot to talk about. I mean I'd just start off by saying a year ago, 1.5 years ago, it won't look good. And I was talking to -- we would have our quarterly calls and sometimes more frequently. And I'd ask, how are you doing? And either you were a very good liar, but you always said like...

That's the answer.

Well, you said you were -- you had your head down and a lot of people were counting you out. One of the classic buy signals on Wall Street is when a sell-side analyst pulls a rating and moves to non-rated. I remember on the call with you and I said, "Ernie, look, I believe in you, I believe in the story. I think you're going to make it, but this is really, really hard. There's so many binary outcomes here. I have to pull the rating, and it's probably a buy signal." And you were like, "Dude, I get it." You kept your cool. You kept your calm. You didn't go bankrupt. You didn't wildly...

Below bar.

You didn't -- well, I mean, this is the auto. Autos is tough. You got to know your industry, know your audience you did not wildly dilute shareholders. You put your head down and kept your team together. You kept a lot of the core team together, which is critical. How do you keep talent from evacuating. You -- I would say, you stopped the bleeding. You got bankruptcy. I think you did -- you took steps to kind of move that off the table on the liquidity side, rightsized the business, focused on unit economics. And now here we are talking about growth in the first quarter, maybe double-digit growth kind of thing and being record levels of EBITDA profitability. How the h**l do you do that? And kind of what are your messages just to begin the discussion. And then we'll go through there.

Okay. Well, that's a wide opening. The last couple of years has obviously been crazy. I think something that happens whenever you go through any of these periods like this is people take some collection of the very complicated set of facts that exist in your past and they select the ones that they want -- that kind of fits the narrative they believe at any point in time. And I think that across Carvana's life, there's been a very varied set of facts. And I think there were many times when you could have selected different data points to tell a lot of different narratives. I think our narrative would be that it was always a very hard business to build. I think we would like to believe that we always had a team that was very capable. I think we would like to believe that we have always offered customers something that is unique and differentiated. And it was always a business model that if executed well and at the right scale, would deliver better unit economics than the traditional model does. And I think the very hard part of that, I think, has been expressed in what we've seen from others who have endeavored to build something similar to what we try to build. And then we've definitely seen it in our own journey, where there were moments of euphoria and there were moments that looked really, really dark where we went down 99%, which is kind of like amazing that, that's even possible. But to me, what that -- those facts have always been true and it's just always been a question of where you're going to make it through. Where are you going to be able to get to a spot where the sum of your scale was kind of sufficient to where the business model made sense. You were still delivering experience that customers love and investors ultimately kind of were along for the journey. And we did not see kind of '22 and '23 being part of our story. But I think that the good news is it caused us to basically shift all of our energy toward part of the business we're always going to have to focus on. We've always had our top 3 priorities have been one, growth; two GPU and then three, driving down expenses. I think we had investor support that allowed us to have those priorities for a long time. And then when that investor support evaporated and we clearly had to be capital independent, it forced us to basically reverse those priorities. But I think the fundamental strength of the customer offering and the underlying business model enabled us as well as the team, which I would like to think our team is pretty great, enabled us to go kind of unlock those positives of the business model relatively quickly. And now I think we're sitting in a spot where we're in a great competitive position. I think the unit economics are very clear. I think we still have a lot of room to grow into the kind of ultimate manifestation of what our business model can be because we still have way more fixed cost than would be ideal. But we're tiny in a massive market, offering something customers love that is very, very hard to replicate. And I doubt that there's going to be a lot of you that are going to line up to fund the next version that's going to try to build something similar. And so I think now the ball is in our hands, and we got to execute well. And I think if we execute, we have an opportunity to build a huge company. So I think it's really exciting. But it's been exciting in all the kind of different meetings that word can have journey from the beginning of the year.

So you took advantage of a crisis, and it seems like also survival is winning. And that was kind of what I think you got is just like if we can survive and get the other side of this, we're winning. What did you see? What was the moment maybe you can think of in the last 12 months where you're like, wow, this is really going to -- we got this. Was it something on the execution side, on the cost or -- and if you want to point out 1 or 2 examples where you felt like, all right, yes, we're going to make it.

Well, my version of the story was like I thought the moment where it was like, we got this. That, to me, was more like 2018 or even earlier. I think like at that point in time, we started to roll out kind of some underlying visibility into our cohort cost structure. People could see our GPU moving in the right direction. People could see our market share in different markets so you can extrapolate it out and like at that point, I thought that kind of the path was clear, and it was -- at that point, it was just execution. And then I think that the way that the narrative collapse as we headed into '22, which I think -- there are all kinds of things that came together. We bought ADESA, we funded it with debt. I think it wasn't our best execution. I also don't think it was as bad as maybe the story got collapsed to be, but it probably wasn't our be execution. Rates went up, car prices went up. everything got really hard. And I think like that was a moment or then it just turned into, okay, this was like a zero interest rate phenomenon. It never made any sense. And I think people kind of through the past out, and it was like reprove it. And so I think in the second proof, I think that we, as a company, the plan we put together last year in kind of probably April, May. Generally, we have like an annual planning cycle. And so we're putting together all our specific goals around that time. I think we looked at that plan and we're like if we can hit this plan, this is going to be a really clear story to a lot of people, and people are going to see where we are. And I think probably by about the end of '23 it began to look like we probably were going to hit that plan. And I think that was like for me at least, kind of like the second time that I felt like, okay, like we've got it and people are going to believe us again as long as we keep margin.

Okay. And it's a tech conference. You're definitely a tech company, what you do with data and how you take a pretty traditionally horrific experience and make it pretty pleasurable experience buying a car on your platform. And I want to show up hands here. Has anyone who has bought or sold a car on Carvana in this room. Okay. Okay. That's some representation.

So we obviously have a lot of market.

That's true. Right here even [indiscernible] my hand went up too, I sold a car, I did not buy, I sold one and it was -- it worked pretty well. It worked pretty well.

Oh god. Oh god. Here we go. Okay.

We will leave it at that. We'll take that one offline. No, it was good. It was good. But contingent to this is the used car market is unique maybe to people in this room. It's a gritty market, a physical market. How is the used car consumer doing just in terms of the setup for the year ahead?

Sure. I think that the used car market generally, I think like the simplest way to think about it is that, in many ways, is led by the new car market. And so I think that the story that we tell about like what happened in the used car market is post pandemic, there was just so much less new car production. There was a massive supply shortage there that led to new car prices going way up. That then pulled used car prices up with it. That really impacted affordability. It also sort of caused traditional buyers that would have -- traditionally the new car buyers to substituents that used cars because they could afford them and because by virtue of like their habit generation over many, many years, they were used to going to new car dealerships where they were going to kind of buy a new car and then also they showed up, and there was a new car form, but there was an off-lease used car they could buy. And so I think that for the actual traditional used car buyer, I think that the market shrunk even more than used car sales did because it was like a substitution for used car inventory into traditional new car buyers. And I think there's that kind of like famous saying there's never been a shortage without a glut that follows it. We clearly had a shortage. I think that it's early to call like a glut in new cars, but I also think it's not totally irrational, but there may -- we may be headed, at least directionally there. And so I think we've seen new car prices start to come down. We've seen incentives from new cars start to go up. I think it's relatively early in all that. I think that the sum of that for used cars is on-net good. I think it's good because affordability, I think it's a little bit negative because it means customers are going to be a little less likely to want to sell their car. It's a little bit negative because it impacts consumer credit performance a little bit negatively when their car value decreases. But on net, we think that that's good, and that helps more customers come back to the market. So I think that feels pretty good.

Affordability, still a problem, but way better or...?

Yes. I think high-level reductions are relative to other goods, like on a CPI adjusted basis, vehicle prices are like around 10% higher than they were pre-pandemic and vehicle payments, including rate are about 20% higher than pre-pandemic relative to other goods. So we think the simple mental model that we use is that should roughly equilibrate with like room for fluctuation depending on what's going on with new car supply because that's like a long product cycle that it can be out of whack for a while.

And on rates, how is that -- what's the direction of travel there? Have we peaked? Or are we kind of...?

You know better than me. Who knows? I hope we've peaked, but I have no idea.

Okay. So you've restructured the business, you rightsized and that gives you the opportunity to focus on unit economics. And now a lot of people in this room, and I think the message from your fourth quarter was kind of growing again, right? Because remember last -- in our Laguna conference last September, you're thinking, I don't want to think about growth right now. I just want to like -- just focus on unit economics and focus on cost, cost, cost. And it seems like you're at that point now where you may be able to get decent growth and show unit economic improvement at the same time. So is that true? Like do you -- are you at a point where you're not making a trade-off anymore between growth in unit economics and you can actually get both simultaneously?

I think we're trying to complete the set of projects that we set out to complete a year ago. I think we still got a little bit of work to do on that, but that would take us through kind of the middle of this year. And I think that's where our primary focus is. I think that...

Fixed cost projects or...?

Cost -- mostly variable cost reduction projects, but also gross profit increasing projects, either through like more intelligent credit pricing and vehicle purchasing or through COGS cost reduction like inbound transport and reconditioning. But we've got a number of projects we're still trying to complete there. I think that for the last 18 months or so, we've been shrinking and it is a business that benefits or suffers from feedback. So I think when we're growing, inventory size goes up, that drives up conversion. That automatically kind of caused those things to get better. You then invest on other things and it allows you to carry more inventory. The reverse is also true. So I think over the last 18 months, we thought the headwind of basically negative feedback as we shrunk inventory and shrunk marketing. I think we're now at a place where basically inventory has been flattish for several months, and I think marketing has been first order flattish for a bit. So I think we're now like moving away from the negative feedback that we've been fighting, but we're not yet leaning into growth. I think we're trying to kind of use this terminology of a transition period which will head into next. And I think the goal of that transition period is going to be to shift from what has been almost, well, 100% unit economic focus in the direction of growth. And as we're making that kind of shift, feel out how well we're executing and how much we're still driving fundamental gains and how much growth we're able to drive and then kind of determine where we kind of leave the settings of the business based on the progress that we're making. So we're trying to not to precisely call our shot, but our goal is absolutely millions of cars, and our goal is absolutely the most profitable automotive retailer. And to do those 2 things, we have to do both. So we're going to shift in that direction over time.

So what would be left -- what will be the biggest opportunity on the variable cost side that you might want to highlight?

I think the biggest...

I know it's a long tail of things. It's also a lot of...

Yes, exactly. There's lots of things that are like $25 or $50 at a time. The biggest single bucket is logistics. There's still -- there's -- logistics is a variable function, but it's got a fixed component. You've got like logistics hubs and management structures and technology that is largely fixed, but flows through logistics. So I think that there's -- that can lever reasonably well. Also, as we kind of build out reconditioning at ADESA locations, I think there's room to decrease both inbound transport and outbound transport. Reducing the inbound transport will be retail GPU benefit, reducing outbound will be an SG&A reduction through the logistics line item. But that's just because you -- in an ideal setup, you want to buy a car, you want to ship a car from a customer that you bought it from as shorter distance as possible. You have to ship it to your nearest reconditioning facility. So as you have more, there's less average distance. And then as you have inventory in more locations, through both customer preference expressed in time and also through shipping fees, customers are more likely to buy cars from a nearer location, and so you can drive down average delivery distance as well. So those are probably the biggest areas, but there's -- in every part of our business, there's room for improvement.

Just from the outside, it seemed like the logistics fees that you added, you used to not charge logistics fee, now you do, and I don't know if you want to share what percentage or did you share, what percentage of your transactions have a logistics fee, either inbound, outbound or both? Do you do both?

It's a couple of hundred dollar change. The majority of sales have logistics fees, but the customers have a free option.

And -- but there -- I mean, elasticity, it seems like, again, you were shrinking at the time, so maybe it's hard to identify. But like a lot of other tech platforms of companies that are presenting here when you add that extra few bucks a month and you test the elasticity and you realize that there might be some churn. But for the most part, that it seemed to...?

so I think we try to equilibrate elasticities across all of our settings, so whether it's shipping fees or vehicle price or bids or rates or whatever it is, we try to -- or marketing spend or inventory size, we try to equilibrate those things. So roughly speaking, we're trying to make it so those things are all balanced. And so that's our goal. But I think the other major gain in logistics that has been pretty big -- that has been like a big cost reduction benefit has just been balancing the system. So before we had -- we didn't have a lot of these tools that enable us to intelligently set shipping fees. So today, for example, if you've got a route that is a 250-mile route in 1 direction, and it's busy in 1 direction. So you're constrained 1 way, you're unconstrained the other way. We now have the capacity to basically charge double distance...

Like a surge.

In the direction that you're constrained and have it be free in the direction that you're not constrained, so you can balance the system again. So our whole system is just a better balanced system as we build these tools that enable us to kind of control the flow across the system.

Again, at the time we did ADESA, everyone thought there was easy to be critical of the timing and the magnitude that was...

We were happy at first and then that. Now our goal is to make them happy again.

But like I remember at the time, it was like do you regret it, you're like, I mean it was -- when you were going through the -- it was looking bad part and you're like, no, I mean, it's painful. You kept the timing, but you're like, I really, really think that we will look back and be very, very glad you did this. Presumably, you feel the same way. But I don't know if you wanted to add any more examples of how having that logistics and fulfillment infrastructure beefed up, even though you're running at extremely low capacity of what you have there, why that's helped you make more optimal density decisions and fulfillment.

So I mean, I'm obviously just slamming the cool at as fast as I possibly can. So like everyone here is supposed to be a lot more skeptical than I am. But my view is just -- it's a very -- we now have 6,500 acres and 500,000 parking spots connected by a logistics network that is customer-facing with the schedule that allows you to select to the hour when you're going to have a car delivered to you across thousands of cars. It's -- earlier, you characterized it as a technology business. Like I don't know exactly what kind of business we are, whatever has higher multiples, we're definitely that. But we're -- whatever we are as like some of those things. But part of what we are without question is a big physical infrastructure business. Like that's part of what we have to be. And I don't know -- it's very, very hard, I think, to put together the infrastructure that we've put together. And as long as you believe that customers care about our offering and want it to the degree that we think they're ultimately going to want it, you don't have many opportunities in time to acquire assets in that kind of chunkiness. I think we had a long-term relationship, the 2 biggest auction houses in the country or Manheim and ADESA. We've had a long-term relationship with both over -- for many, many years prior to the acquisition of ADESA. And there were always smaller level conversations about could we acquire this side or that side or whatever else. And I can tell you, look, when the auction business is going well, they print money per acre, and there's no desire to ever get rid of those sites ever. When you head into a time where the auction business isn't going that well, availability is there. And if you believe in the long term, then like it's a good time to go for it. We will see if we end up being right on that, but we think we will.

Remember, I seem to remember the NADA and a bunch of other dealer groups were kind of boycotting you or cutting ADESA. Has that calmed down? Has that -- I don't know if it was like a -- was that ever material? Or was it just talk and where is that now? That animosity.

Yes. Obviously, that is a positive, like, wow, if you're not worried about these guys like they must be doing something f*****g right, but like I mean...

You can't say that. You can't say that.

Sorry. Right. I mean -- excuse me.

Go on. Go on. All right.

So I think that was a story to some degree. I think it's always -- any time it's like media or anything like this. It's like there's always a loud minority. So I think there was more noise than there was ever a business impact. But we're at bigger market shares today than we were at the time of the acquisition. It did go down a little bit post-acquisition. It's coming back now. So I think overall, that I think our pitch -- like when we talk to dealers, we just try to be straightforward and we're like, okay, yes, we are competitive. That is true. We're trying to sell cars, you're trying to sell cars, like that's fine. What's also true is we buy cars and sell cars all day long. And we're trying to build a business that serves our purposes using our tools and then make it available to you, and you decide what you want to do. And I think most ultimately decide they want to transact.

Let's talk about capital structure, Ernie. Your market GAAP is around $15 billion. You have around $6 billion or $7 billion of debt, maybe close to $7 billion of debt, if you include the peak T+1 or T+2 years. A lot of people in this room are wondering...

You can't include future interest. Come on.

I mean if you -- but you're adding it if it's payment in kind, these accumulate...

Well, yes, fair enough. But it's also -- it's like a -- it's ex cash, right, like you -- if you're not paying it, you're at least preserving the cash. So it's -- if you're going to count our future interest, you got to count everyone else's future interest I guess what I'm saying. But we clearly have more depth than as optimal. We -- I think -- I go back in my head sometimes to the conversations that Mark, our CFO, and I had when we were buying ADESA and kind of making the choice to finance it with debt. And like we tried to have all the smart discussions around what's the worst thing that can happen, what happens if the stock price drops, what happens if things get tougher, like can we cover this from a cash flow perspective. And I think I'm sure like in those conversations, Mark was closer to right than I was, although in my memory, I was exactly right. But my guess is in real life, Mark, is usually the one who's right on those things. But neither one of us had on our Board, okay, like people are just going to decide this model was like a zero interest rate phenomenon. It doesn't work like stock is going to go to basically 0, and it's game over. So I think the lesson you have to take from that is like the future -- the distribution of possible futures is wider than you kind of thought it was, and that means that, that's a little more dangerous than you thought it was. And so I think all else constant, like our optimal capital structure will have less debt in the future, but we got to be smart about how we get from here and there.

There are people in this room that are wondering whether you should do something to -- whether you should increase equity to make that balance happen now? Or are you confident that you don't have to do that. You've been able to delay it and take steps to avoid having to do that. Do you have confidence in the ability of the business to generate enough cash to achieve that lower level of debt over a couple of year period? How we think about that? I'm not -- I don't want to [indiscernible].

No, you kind of do. You're saying you don't but you are kind of...

Well, I mean, it's a big [indiscernible]. I mean I think if you were to -- I mean, we'll never know, maybe we will. But if you were to do some -- a 5% or 10% type equity event, that I think your stock might actually go up on that kind of thing, maybe not on the day, but I think that there -- it would be 1 of those based on my discussions, some investors might view you as a better risk-adjusted investment, but...

Yes. So I would say -- I think like just to start at the end there, I do think, over time, we would like to have less debt than we have today. So I think we'll manage to that over time. We'll see the pacing and the tools and everything else. What I would also say is, I think I can never decide how much of your motivation should ever come from trying to prove people wrong. But I'm pretty sure the right answer isn't 0. And I do think that like if any of you want to take a trip down memory lane and go back and listen to any of our conference calls over the last 2 years, where we always got the question, how much volume do you need to cover your interest expense? And Mark would always say, we think we can do it at our current volume. And you could basically hear the investors and analysts go [indiscernible] on the other side of the phone. And I think today, like hopefully, if we do what we're supposed to do, I think that it will -- maybe it will turn into like a maybe and then they'll turn into like a head nod, but we do think that we can cover interest and ultimately pay back debt at volumes where we're at today, and we absolutely plan to grow from here. And that's because we think the business model is a really powerful model. And we think that it lends itself to larger GPUs than many other companies have been able to achieve because we're vertically integrated, and we think the value of that vertical integration is greater than kind of the customer offering benefits that we passed through to customers in the form of lower price. And we think that at scale, the cost can be much lower. So we think we can generate meaningful cash even in today's volumes, and we plan to grow from here.

Okay. I mean you don't target positive free cash flow this year, but you can generate meaningful cash at today's volumes this year.

I'm not going to -- I don't think we want to provide more guidance we've already provided, except we're in the abstract, we think we could generate positive cash flow at these volumes.

Okay. And is there anything that you'd highlight as to why you wouldn't be able to generate free cash flow at today's volumes without...?

I think the biggest input to that question will always be executed. And then I think secondarily, it would be environment.

Okay. I'm going to [indiscernible] for a second. Any questions for Ernie, please. Happy to wait here. We have a microphone in a crowded room. Bob?

So I sold a Range Rover Sport this weekend to yourselves. It was -- this is New York City experience. It was seamless. I got the ads to Meta, just so you know, on wheels on Friday night, I went to a dealership on Saturday morning, half a mile from where I live on the Upper West side, wasn't satisfied with the price that they offered. Came back. There was a function at the Meta ad. I went on, and I was shocked that how seamless the whole process was. So this is not a [indiscernible] for yourselves. Because there is a pointed question -- there's a pointed question coming in the second, but it was seamless, your guy picked the car up yesterday and the cash was in my bank this morning. Staggering. But the price offered was 50% higher than the dealership down the road.

I hope it was $100 car.

It's a Range Rover Sport. So it wasn't a $100 car. It wasn't crazy money, but it was enough. The 50% is different. So my question is, of course, if you try and bring vehicles into the funnel. Is there some way you can explain that dynamic other than he's got a large dealership that you need to sustain and you guys don't and you're going to take it up the Bronx. Can you just explain that a little bit more as it stands right now. But the experience was incredible. I would never sell another car to a dealership ever again.

Yes. Well, good, mostly on that. So I think the most -- here's what I think is like the most interesting dynamic about that question. I do think if you had visibility into each of our, let's say, wholesale transactions because that gets monetized in a way that's clean and simple, right? We buy a car for me. If we're not going to sell your car retail, we're just going to take it to an auction, we sell it. And then you have like a known profitability on that transaction. You have -- we know what we paid, we know what we got. So it's very clear. The distribution of that profitability is very wide. And it's wide enough toward if you saw no one else's distribution you would think that we were heavily exposed because it's like at some point, someone is going to be better at this than you are, and you're going to end up with the bad side of that distribution, it's going to be brutal. But I think what is -- the truth is everyone has a pretty wide distribution like there was an experiment early on when we were launching Carvana, I'll try to tell the story somewhat quickly, but this was like 2012. This is before we even launched. One of the key questions was will you be able to sell cars online. One of the key questions was, can you buy cars from people side on scene or you're going to get absolutely destroyed because you're at an informational disadvantage. And so we took a bunch of -- at the time, I was working at DriveTime. We took a bunch of DriveTime buyers who had previously worked at CarMax. And we selected -- we randomly selected a pool of 100 cars that were trading at the Phoenix ADESA auction that next day. And we basically ran our algorithms and we valued them. And then we had the buyers go and value all those cars. And then we stepped back and then bid on them when we ran them through auction. And we just said, what are the values of these cars and who had bigger average [indiscernible]. And our average [indiscernible] -- these were relatively inexpensive cars at the time. They were on the order like $10,000. Our average [indiscernible] was like, I can't remember what the exact number is, but I think it's 1,200 or 1,300 and the average [indiscernible] of these buyers was like $1,100, $1,200, so it was like $100 smaller than our average [indiscernible]. But like the distribution was extremely wide for both of us. And I think the reason is because it's very, very hard to value used car very well. and the ultimate valuation machine, which is the auction also is like a -- it's a noisy machine, where there's like even the same car being run through 50x would have 50 different values, it could be pretty wide. The good news on that is that distribution -- as long as your distribution has a similar width to everyone else's distribution, that's just opportunity. And that's just opportunity to get better. So I think the Internet is full of examples of where we massively overpaid for cars and then people say, you can't make any money, but then like that all comes out in the wash and that is it's also full of examples where we underpaid for cars and people are kind of frustrated by the offer that we made. And I think our goal over time is just get smarter with all the various data sources that we have and all the data that we're collecting from all the different transactions to narrow that distribution. And I think the better we get at that, I think we are likely already in a place where our distributions are much narrower than most and I think there's clearly plenty of room to narrow them further. So that's the kind of opportunity when we talk about like fundamental gains in retail GPU. That's one of those areas. There are always more data sources coming available and there's always more kind of depth and intelligence we can build into our systems to collapse that distribution. And that's something that we're always working on. And that's something that we've, I think, seen gains in over the last year or 2. And I think it's an area where we have 3 or 4 projects where we're trying to narrow down to 1 or 2 projects that we're going to work on over the next 6 months. So I think that's a bummer that there's that much width in a way, but I think it's opportunity. And I don't think we're disadvantaged there. I think we're actually probably advantaged.

Any other questions right now. Ernie, what's your experience -- latest experience with electric vehicles on the platform? Anything you'd point out in terms of, I don't know, how quickly they move or unique issues in terms of repair or working with them on the IRCs or the values or popularity, I don't know if you had any because it seems to be quite fashionable to beat up on electric vehicle demand lately and like that might get a little worse for...?

I think at a high level, we view it as an opportunity. I think that we -- our customer base skews electric. So like we've always had like a bigger electric market share than ICE market share. I think it does require some like process differences that -- many of which aren't like particularly like intellectually exciting, but you do have to have just different processes to make sure that you're at the point of intake and the point of sale, you're doing different things to give customers a good experience. And then it requires some infrastructure investment in the form of chargers and sometimes in the form we just bring more power into your facilities to even support the charters. And I think that's an area that we're -- like we're believers in EVs over time. I think EVs are at an earlier part of their technology maturation curve, obviously than ICE cars. But I think even different places in the world points to very clear improvements in kind of customer-facing attributes of those electric cars. And we think it's a matter of time. And so we think it's a smart place to be prepared.

I didn't know what portion of your volume is EVs right now? I mean I don't know if it's skewed higher than market just given the kind of audience that you're targeting?

It is. We haven't given that number, but we have on the order of 1% of market share, and we've definitely got a higher market share we have in ICE.

Okay. Any other opportunities beyond used car, I mean, we talked about this -- we wrote about this at Morgan Stanley quite a bit, that is the used car to Carvana like the book to Amazon, where you start that way, it's a product that requires some unique assets in the field and fulfillment. But then over time, could have multiple ways to address global mobility market, whether it's in the new or parts and service or fill in the blank. Lots of anything that moves and needs to be maintained and fulfilled and kind of this very specific logistics problem that you're solving. I didn't know if this was -- is still something that you felt was relevant for next 1 to 2 years or whether it was something like let's just keep -- we just got enough to do on the used car side and let's see where it takes us.

Yes. I would say it's -- it's -- the used car market is a 40 million car a year market, and it's a roughly $1 trillion market. It's a -- it's a very, very big market, and I think it's a market where we are very confident we can offer differentiated experiences with differentiated unit economics. And so I think we're supposed to be smart in our investment and focus there. We would like to think that we have built a transaction engine that is generalizable and interesting. And I think we're undoubtedly in a world where like there's a lot of dynamism around what's going on, whether it's electrics versus ICE or new OEM entrants or whatever else. It will be intent see how that all plays out over time. We like where we are on the Board is kind of the analogy that we use there, but the focal point is growing used.

Biggest risk facing Carvana in 2024?

I think it's always execution. Again, like I -- as I said, like I'm a huge believer and I'm a natural optimist, so I'm not objective or even close to it in these statements. But I just think that it's -- this is our game to win or lose from here. And I just think that we have to execute really well. I think the market is huge. I think the experience we deliver to customers are great. I think customers are going to shift in our direction over time. I think they're getting more and more accustomed to buying everything they buy online. I think there's normalization of even buying cars online, mostly through new OEMs and EVs. I think there's clearly room in our unit economics. I think we found another gear in execution over the last 18 months, and I think it's our job to kind of try to maintain that speed. But I just think that it's -- like we couldn't ask to be in a better spot and I think we also, though, we have a very complicated machine. So it's like we have to do a good job taking that machine and scaling it up to what it can be, and that's not going to be easy. So I think execution is risk by a long way.

And how would you describe any -- the changes of some of your online competitors. There's been some that either smaller or have liquidated. You're in the process of helping 1 or more competitors, I think, doing that. I didn't know if that's in any material way affected the competition in the market? Or are you seeing it being replaced just as fast as some of the other more well-resourced public dealer companies going in?

I mean, I think the best reduction of that is I think that we are -- the combination of the gap of our offering to the closest competitive offering and the realistic scales that can be achieved by those competitive offerings, I think that we're more differentiated than we've ever been. And I think, that it's harder for anyone to enter now. I think like if the success story looks like you go down 99% in the middle and you spend billions of dollars along the way. I think it's like that's a hard thing to get behind. So I think we're in a really good spot there. And that's where, to me, it's exciting, I think we just have to execute, and I think we've got -- it's very hard, I think, to find yourself in a market of this size where you effectively have versus at least like pure-play competition, a 10-plus year lead. Like I don't know that many examples of that. And so I think we have to...

It's still less than 1%.

Yes. And we're less than a percent of the market. So I mean, yes, I think that's a good combination of facts.

More questions for Ernie. Just speak up.

[indiscernible] record. It seems like the ABS market is more constructive for your financing deals, like what's preventing you from pushing harder into growth and going from this Phase 2, Phase 3 combo to Phase 3?

I think the -- I think over the last year -- I think that there are 2 major lessons for us to take through the last year. One is working on fewer things is extremely valuable and going from one thing to the next, when it's done is a discipline that smart ambitious people in general don't have, and it requires like significant discomfort constantly to maintain that level of focus. And I think that by virtue of not growing over the last 2 years, it was easier to focus because there was like a smaller bucket of things to even pick projects from. And I think that led to more focus than we would have otherwise had. I think number 2 is, I think like the parent concept is pressured, but I think like the immediately controllable concept is accountability. I think that the better a job that you can do maximizing accountability on a rapidly recurring basis, like every week, you have an expectation and you compare reality to that expectation. I think the more you can just internally generate pressure that makes you execute at a higher level because there's no room for nonsense. And I think accountability is higher when there are fewer moving pieces, because there's just not as many room -- or as many ways to explain away bad results. And so I think that by focusing on just unit economics, accountability was higher over the last year. I think in order for us to achieve our goals, we have to grow and we have to keep getting better economically. So we don't get the luxury of that maximum level of focus and maximum level of accountability. Focus, I think, is relatively easier out of the 2 to try to maintain because we can just continually every quarter, make sure that to the point of discomfort, we're taking things off the board, and we're frustrated because the thing that we want to do, we're not going to get to do yet. And I think that it's literally, I think, managing until you have that feeling in your stomach where it like doesn't feel good, I think it's where you have to go if you have a bunch of ambitious people because they will explain to you why they should do it. And you'll explain to yourself why you should do it. I think on the accountability side, I think we've learned a lot about how we set targets that maximize accountability, and I think that we'll continue to try to set targets in the same way. And I think that there will be more moving pieces. And I think it will be harder because we're going to -- you have joint set of goals. But I think our job is to try to just internally generate as much pressure as we possibly can so we can keep executing at the speed that we did over the last 2 years. And I think if we do those 2 things and we're right about all the inputs to the equation, then I think we're going to build something off. But those are the 2 things that are like most important that we have to do over the next couple of years.

[indiscernible].

So the simplest thing is basically just like hiring and training into that capacity and then growing inventory and starting to benefit from the positive feedback and then adjusted some of the settings in the business where -- at the intersection of transaction, volume and monetization per transaction, we are probably not at like the peak of what we think is possible from like an EBITDA and cash flow perspective today because we've been holding our operational capacity flat. And so as we made fundamental improvements, it forced us into more monetization per transaction. That's like more the place where we are. So I think that we can kind of like reset those settings, but we think that like first order that given our current assumptions would actually be beneficial to cash flow. And then I think it's from like a project prioritization perspective, we're trying to pick things that drive conversion more so than drive down costs. And I think we're out of time and the things coming out.

Thank you for your question. Bob, thank you for your question. Ernie, I want to thank you for joining us. Still so much more to do and you are through with the skeptics strong. So keep doing it.

We'll do. Thank you, Adam. Appreciate it. Thanks so much.