Carvana CEO says he wouldn't bet against Tesla selling cars online

Key Points
  • Tesla's move to sell cars online could make sense, said Carvana CEO Ernie Garcia.
  • The electric car maker's 'bold' move has garnered mixed reviews from investors.
Carvana CEO Ernie Garcia: Building trust in the brand could be Tesla's key to selling cars online
Carvana CEO Ernie Garcia: Tesla needs customer trust to sell online

The head of a rising online used car business said Tesla's decision to take all sales onto the internet may be a much better bet than some skeptics think.

"I think every business has its challenges, but they've done a pretty good job overall, I wouldn't be betting against them," Carvana CEO Ernie Garcia, said Thursday on CNBC's Squawk Alley. "I think when you buy a new car, questions are different, but the return policy is enormously powerful like it is on the used side. A customer knows they can return it."

Tesla shares were up more than 1 percent Thursday.

Tesla's shift to online sales has garnered mixed reviews from some investors, with some saying the move could substantially reduce costs by eliminating stores, but also worrying that Tesla is losing a valuable sales strategy.

"The move to direct sales is bold, though we are comforted that 70%+ of Tesla buyers in 2018 did *not* test drive prior to purchase," Bernstein analyst Toni Sacconaghi wrote in a research note shortly after Tesla's announcement a week ago. "That said," he added, "we do believe that salespeople have been important in up-selling Tesla customers, as well as selling Tesla solar products."

The move will result in the closure of most of Tesla's stores and layoffs. At least one employee said they are still in the dark over Tesla's plans.

The electric car maker has long been waging battles in a number of states to allow Tesla vehicle sales. Several states have laws banning the direct sales of vehicles by automakers. The laws are vestiges of an earlier era, when dealers wanted to be protected from automakers competing directly with them.

Garcia said he is not worried too much about direct competition from Tesla, since Carvana focuses on used cars. But he said the company can bring more customers to online car sales overall.

"Tesla has an incredible megaphone," he said.