Core Insights - The share of consumers taking out subprime loans has reached its highest level this decade, indicating increasing financial stress among Americans [1][2] Consumer Credit Trends - In Q3 2025, subprime loans accounted for 14.4% of borrowers, up from 13.9% in Q3 2024, marking the highest level since 2019 [2] - Approximately 25% of the U.S. population has a FICO credit score below 660, categorizing them as subprime [2] - The percentage of subprime borrowers at least 60 days late on auto loan payments has risen to 6.43%, double the rate in 2021 [3] - Year-over-year home foreclosure filings have increased for six consecutive months as of August [3] Divergence in Borrower Categories - The share of super prime borrowers has increased from 37.1% in Q3 2019 to 40.9% in Q3 2025, with an addition of 16 million super prime borrowers since 2019 [4] - Super prime borrowers benefit from more favorable loan terms, including lower interest rates and higher credit limits [4] Overall Consumer Credit Health - Consumer-level delinquencies have decreased by seven basis points year-over-year to 2.37%, suggesting improved consumer credit health [5] - There is a noticeable divergence in consumer credit risk, with some individuals thriving while others face financial strain [6] Economic Implications - The current credit loan data reflects a K-shaped economy, where higher-income earners continue to spend on discretionary items, while lower-income earners are reducing expenditures [6] - The economic landscape is evolving towards two distinct groups, with super prime borrowers less likely to face debt issues [7]

Core Insights - Carvana Co. shows signs of stabilizing credit performance in the subprime auto market, with slower net loss growth and declining delinquencies, providing cautious reassurance to investors [1][3] Asset-Backed Securities Performance - September data for Carvana's 2025-N1 subprime ABS indicates a moderation in cumulative net loss (CNL) growth, which rose by 44 basis points to 2.29%, a slowdown from the 57-basis-point increase in August [2][3] - The CNL increase is favorable compared to the 85-basis-point average seen in 2022-2023 subprime ABS issuances [4] Delinquency Trends - Positive trends in delinquencies were observed, with 30-day delinquencies decreasing by 44 basis points to 6.64% and 60-day delinquencies declining by three basis points to 2.26% [5] - 90-day delinquencies rose modestly by 13 basis points to 0.95%, consistent with earlier ABS vintages [5] Broader Auto Market Context - Despite investor concerns regarding credit quality, broader trends in the auto portfolio among large-cap banks remain stable, with year-over-year declines in delinquencies and charge-offs [7] Competitive Advantage - Carvana's vertically integrated model supports strong unit economics and industry-leading EBITDA margins, despite holding a modest 1% market share in U.S. used car retail [8] - The company is expected to leverage cost advantages as tariffs impact new car prices, potentially expanding market share and profits [8] Financial Projections - Revenue is projected to increase from $13.67 billion in fiscal 2024 to $18.97 billion in fiscal 2025 and $24.03 billion in fiscal 2026 [9] - Adjusted EBITDA is expected to grow from $1.38 billion in fiscal 2024 to $2.19 billion in fiscal 2025 and $2.92 billion in fiscal 2026, resulting in EV/EBITDA multiples of 58.9x, 37.0x, and 27.8x respectively [9] Company Overview - Carvana, founded in 2012 and based in Tempe, Arizona, is the largest pure-play online used car retailer in the U.S., with a combined retail and wholesale volume of over 1.3 million vehicles in 2024 [10]