A slowing used car market has eroded confidence in Carvana' s path to profitability, according to Stifel. Analyst Scott W. Devitt downgraded shares of Carvana to hold from buy, saying in a Tuesday note to clients that several signs are pointing to slowing demand for used cars. "Deteriorating capital market conditions and worsening trends in the used vehicle industry have eroded our conviction in the path for Carvana to secure the necessary capital to realize sufficient scale and self-funding status," Devitt wrote. Stifel slashed its price target on the stock by 65% to $40 per share from $115. The new target implies 9% upside from Tuesday's closing price. The firm noted that initial data from April showed weaker-than-expected demand for used cars despite Stifel's original projections that Carvana's second quarter would be its strongest. Retail used car volume dropped 21% year over year in April, according to data from Cox Automotive . A plan announced by Carvana on Tuesday to cut its workforce by 12% also signaled to analysts that "weaker demand will persist beyond the near-term." "We are further reducing our estimates for Carvana's retail and wholesale vehicle sales, and our revised model suggests that the company will need to raise incremental capital relative to its existing liquidity resources before reaching breakeven," Devitt wrote. Shares of Carvana dipped 2% in Wednesday premarket trading. —CNBC's Michael Bloom contributed to this report.
A slowing used car market has eroded confidence in Carvana's path to profitability, according to Stifel.