To The Moon

Get ready to pay more for your next car. Auto prices in the United States will start to rise very soon – perhaps within the next few weeks.

That’s because President Donald Trump once again announced plans for 25% tariffs on imported cars and parts that will go into effect April 3, a move that will raise the cost of producing all cars sold in the United States – both imports and those built in American factories – by thousands of dollars each.

Those additional costs will rapidly lift car prices if the tariffs go into effect. Previous plans for tariffs had been paused or postponed twice.

U.S. Used Car Market Looks To Grow Amidst Auto Tariffs On Imported Car

The US used car market is a large and dynamic sector, projected to grow, with factors like online sales, affordability, and the rise of certified pre-owned vehicles driving its expansion, though challenges like higher interest rates and maintenance costs exist. 

The Consumer Price Index (CPI) for Used Cars and Trucks in the U.S. surged by over 50% between July 2020 and January 2022, driven by a combination of pandemic-induced supply chain disruptions, unprecedented demand shifts, and macroeconomic factors.

Here are the factors which have contributed to the rise of the CPI for Used Cars and Trucks in the U.S., while we might not see such a surge because of tariffs, I think it is important for us to note these factors.

COVID-19 Supply Chain Disruptions

Semiconductor Shortage: Auto manufacturers halted production in early 2020 due to pandemic lockdowns, leading to a critical shortage of semiconductor chips (vital for modern vehicles). This caused new car production to plummet, reducing supply by ~3 million vehicles in 2021 compared to pre-pandemic levels.

Delayed New Car Inventory: With fewer new cars available, buyers flooded the used market, creating a supply-demand imbalance. The scarcity of new vehicles turned used cars into a hot commodity.

Surge in Consumer Demand

Shift to Personal Vehicles: Fear of public transportation and ride-sharing during the pandemic led households to prioritize car ownership. Demand for used cars spiked as budget-conscious buyers sought affordable options.

Stimulus Checks & Savings: Government relief programs (e.g., CARES Act) injected disposable income into the economy, enabling more households to purchase vehicles.

Low Interest Rates: The Federal Reserve’s near-zero interest rates made auto loans cheaper, further fueling demand.

Rental Car Companies Entered the Fray

During the pandemic, rental companies like Hertz and Enterprise sold off large portions of their fleets to stay solvent. However, as travel rebounded in 2021, they scrambled to replenish inventory, competing with consumers for scarce used vehicles and bidding up prices.

Production Delays and Inventory Scarcity

The global semiconductor shortage persisted into 2021–2022, delaying new car production. For example, U.S. new car inventory dropped from a 3.5-month supply in 2019 to just 10 days’ worth by late 2021.

With fewer trade-ins and lease returns (due to stalled new car sales), the supply of used cars tightened further.

Inflationary Spillover Effects

Rising costs for labor, shipping, and raw materials (e.g., steel, rubber) increased prices for repairs and parts, indirectly pushing up the value of used vehicles.

Speculative Behavior: Dealers and wholesalers began stockpiling used cars, anticipating prolonged shortages, which exacerbated price hikes.

Data Snapshot

Manheim Used Vehicle Value Index (a key industry benchmark) surged ~48% from July 2020 to April 2021 alone.

By January 2022, used car prices accounted for ~1/3 of overall U.S. inflation, per the Bureau of Labor Statistics (BLS).

Why Prices Peaked in 2021 and Stabilized in 2022

Mid-2021 Peak: Prices spiked as stimulus-driven demand collided with minimal new car production.

2022 Cooling: Semiconductor supplies began recovering, new car production slowly resumed, and demand eased as pandemic fears subsided. However, prices remained well above pre-pandemic levels.

The used car market became a microcosm of pandemic-era economics: supply chain chaos, pent-up demand, and fiscal stimulus collided to create a historic price surge. While temporary, this episode underscored the fragility of global supply chains and the outsized role of used vehicles in inflation metrics. By early 2022, prices began moderating but left a lasting impact on affordability for low- and middle-income buyers.

I will be watching how the CPI on Used Car perform after 02 April.

Why Carvana Would Stand Out As The Used Car Retailer

$Carvana Co.(CVNA)$ , as a leading online used car retailer, could potentially benefit from auto tariffs on imported new cars, depending on how such tariffs reshape consumer behavior and market dynamics. However, the impact is nuanced and hinges on several factors:

Increased Demand for Used Cars

New Car Price Inflation: Tariffs on imported new cars (e.g., European or Asian brands) would raise prices for those vehicles, pushing budget-conscious buyers toward the used car market. Carvana, with its large inventory of pre-owned vehicles, could see higher demand.

Substitution Effect: Similar to the 2020–2022 semiconductor shortage, scarcity of affordable new cars could drive buyers to used alternatives, boosting Carvana’s sales volumes and pricing power.

Inventory Mix and Sourcing

Domestic vs. Imported Used Cars: If tariffs target new imported cars, used models of those brands (e.g., Toyota, BMW) could become more attractive relative to their pricier new counterparts. Carvana’s ability to source and sell popular imported used models (e.g., Honda Civic, Tesla Model 3) could position it well.

Domestic Focus: If tariffs incentivize buyers to favor U.S.-made vehicles, Carvana’s inventory of used domestic trucks/SUVs (e.g., Ford F-150, Chevrolet Silverado) could see stronger demand.

Supply Constraints and Pricing Power

Reduced New Car Production: Tariffs could disrupt global supply chains (e.g., if retaliatory tariffs raise costs for parts/materials), prolonging new car shortages. This would tighten used car supply, supporting higher prices—a tailwind for Carvana’s margins.

Trade-In Dynamics: Fewer new car sales (due to tariffs) could reduce the flow of trade-ins, limiting used car supply. However, Carvana’s direct-to-consumer model and proprietary inventory-acquisition tools (e.g., vending machines, online appraisals) might help it source vehicles more efficiently than competitors.

Competitive Advantages

Digital-First Platform: As buyers shift online to compare prices amid market volatility, Carvana’s seamless digital experience (e.g., home delivery, 7-day returns) could capture more market share vs. traditional dealers.

Scale and Logistics: Carvana’s nationwide infrastructure (e.g., inspection/reconditioning centers, logistics network) positions it to handle increased demand more effectively than smaller dealers.

Risks and Challenges

Economic Sensitivity: Tariffs could spur broader inflation or slower GDP growth, reducing consumer spending power. Used cars are cyclical, and demand might drop if the economy weakens.

Regulatory Risks: Stricter tariffs could cascade into higher costs for repairs/parts (e.g., imported components), raising maintenance expenses for used cars and dampening buyer enthusiasm.

Debt Burden: Carvana’s high leverage ($5.8B debt as of Q2 2024) limits flexibility if tariffs trigger market volatility or margin compression.

Carvana Revenue Grew By 65% During Historical Precedent: 2018–2020 Tariffs

During the U.S.-China trade war, tariffs on steel/aluminum and Chinese parts raised new car prices, contributing to a surge in used vehicle values. Carvana’s revenue grew by ~65% YoY in 2019, though this also coincided with pre-pandemic demand tailwinds.

In 2018, the Trump administration’s tariffs on steel, aluminum, and Chinese auto parts raised production costs for automakers, contributing to higher new car prices. Used car prices surged as buyers sought alternatives, with the Manheim Used Vehicle Value Index hitting record highs.

Technical Analysis - Exponential Moving Average (EMA)

If we looked at how CVNA stock have been trading, it is showing signs of daily uptrend continuation, RSI is showing an increasing momentum I would think CVNA might build a daily uptrend expansion next week when the auto tariffs came into effect on 02 April.

As we can see how CVNA have managed to stay near the 50-day despite the market weakness due to the recent selloff on the concern of tariffs.

I would think investors interest would really come back strong come 02 April, I would be planning to slowly take position on CVNA as we move closer to 02 April.

Summary

Auto tariffs create a ripple effect: they inflate new car prices, reduce new vehicle supply, and push cost-conscious buyers toward the used market. For used car dealers, this can mean higher demand, stronger pricing power, and increased profitability—provided they can manage inventory acquisition costs and navigate broader economic risks.

Carvana could benefit from auto tariffs indirectly through stronger used car demand and pricing, but its upside depends on:

1. Tariff Design: Are tariffs limited to new cars, or do they extend to used imports/parts?

2. Inventory Strategy: Can Carvana pivot its sourcing to capitalize on in-demand models (e.g., tariff-affected brands)?

3. Macro Environment: Will inflation/interest rates overshadow tariff-driven demand?

In the short term, tariffs could boost Carvana’s sales and margins. Long term, its ability to manage debt, inventory, and operational efficiency will determine whether it sustains gains.

We as investors should watch for tariff specifics and Carvana’s inventory mix adjustments.

Appreciate if you could share your thoughts in the comment section whether you think Carvana would benefit from the impact of auto tariff on imported cars.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.