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Carvana CVNA and Lithia Motors LAD are two major players in the U.S. auto retail sector, but they operate with very different approaches. Carvana focuses exclusively on selling used vehicles through its digital-first platform, aiming to simplify and modernize the car-buying experience. In contrast, Lithia Motors sells both new and used vehicles, combining a vast network of physical dealerships with growing digital capabilities to offer customers a full omnichannel experience.
As the auto retail landscape evolves amid shifting consumer habits, supply chain shifts and rising tariff risks, which of these companies holds up better? Let’s break down the fundamentals, growth drivers and headwinds facing both companies to determine which stock deserves a place in your portfolio now.
The Case for Carvana
Carvana is the second-largest used car retailer in the United States, and it has made a name for itself with its fully automated, coin-operated car vending machines, which offer a unique and memorable pickup experience for online buyers. Its end-to-end digital model is more asset-light compared to traditional used car dealers, which gives it flexibility and efficiency.
Carvana has shown strong momentum in recent quarters. It has exceeded earnings expectations in each of the last four quarters. Retail sales have been rising steadily, with the company selling over 100,000 cars in each of the last four reported quarters. In the first quarter of 2025, Carvana's EPS more than doubled from a year ago, beating estimates. Retail units sold jumped 45.7% year over year, driven by robust demand. The company expects continued growth in retail sales in the second quarter of 2025 and significant full-year gains in 2025.
Operational efficiency is also improving. Carvana posted a record adjusted EBITDA of around $488 million in the last reported quarter. Its EBITDA margin came in at 11.5%, more than double the industry average. The company has lowered reconditioning and transportation costs by insourcing services, improving logistics, optimizing staffing, and using proprietary software. These efforts have helped improve gross profit per unit (GPU), which rose 8% in the first quarter.
Importantly, Carvana is also finding strength in the current trade environment. While tariffs will raise prices of vehicles and create uncertainty, CEO Ernie Garcia believes Carvana’s value-focused used-car model may benefit as new car prices rise faster than used ones.
However, financially, CVNA is not strong. Its balance sheet remains stretched. As of March 31, 2025, the company had $5.26 billion in long-term debt against $1.8 billion in cash. Its debt-to-capital ratio stands at 0.75, well above the sector average of 0.34, making leverage a key risk for investors to watch.
That said, Carvana’s strengths clearly outweigh the risks. Long term, Carvana’s ambitions are bold. Garcia has outlined a long-term goal of selling 3 million retail units per year at an adjusted EBITDA margin of 13.5% within the next 5 to 10 years, highlighting the company’s confidence in scaling its digital-first platform and redefining the future of auto retail.
The Case for Lithia
Lithia Motors stands out as one of the largest auto retailers in the United States, with a diverse business model that helps reduce risk and drive steady growth. Its mix of new and used vehicle sales, along with high-margin aftersales services, financing, and fleet management, provides multiple income streams. This diversification helps Lithia remain stable even during economic slowdowns or market volatility. Notably, its aftersales segment accounts for about 40% of gross profit and is expected to benefit from tariff-driven shifts as consumers hold on to vehicles longer and invest more in maintenance.
That said, Lithia is more exposed to tariff risks than some peers, as new vehicle sales make up about half of its total revenues. Tariffs are expected to increase the costs of new vehicles and parts, making cars more expensive and potentially slowing demand. To stay competitive, Lithia might have to offer discounts or incentives, putting pressure on margins. In fact, gross profit per new vehicle sold fell in the last reported quarter, with gross margins declining from 7.4% a year ago to 6.3%. Rising input costs and pricing pressure could continue to weigh on profitability.
Still, Lithia continues to grow its footprint aggressively. In 2023 and 2024, it added nearly $10 billion in annualized revenues through acquisitions, targeting high-performing stores in profitable regions like the Southeast and South-Central U.S. Its digital platforms, Driveway and GreenCars, are expanding its online reach, while its stake in fleet management firm Wheels adds valuable synergies across retail and fleet segments.
Lithia also boasts strong cash flows and continues to return capital to shareholders. Its annualized cash flow growth has been 25%, far above the industry average. The company recently raised its dividend by 4%, with a five-year annualized dividend growth rate of 15%. It also repurchased $146 million worth of shares in the last reported quarter.
However, high debt remains a concern. As of March 31, 2025, Lithia’s long-term debt was $5.9 billion, with a debt-to-capital ratio of 55%, well above the industry average. This leverage could limit future investments. Still, with a target of $2 in EPS for every $1 billion in revenues, the long-term outlook remains positive if execution stays on track.
Price Performance and Valuation of CVNA & LAD
Year to date, Carvana shares have risen roughly 32%, while Lithia stock has lost 14.5%.
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Carvana is trading at a forward sales multiple of 2.96X, way above its median of 1.60X, over the last two years. LAD’s forward sales multiple sits at 0.2X, slightly below its median of 0.22X over the last three years.
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Carvana does seem pricey. But its valuations also reflect its high growth expectations and improving profitability. If the company sustains its execution, the premium could be warranted.
How Do Estimates Compare for Carvana & Lithia?
The Zacks Consensus Estimate for CVNA’s 2025 sales and EPS implies year-over-year growth of 230% and 166%, respectively. The EPS estimates for 2025 and 2026 have been trending northward over the past 60 days.
Magnitude - Consensus Estimate Trend for CVNA
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The Zacks Consensus Estimate for LAD’s 2025 sales and EPS implies a year-over-year increase of 7.7% and 12.8%, respectively. The EPS estimates for 2025 and 2026 have declined over the past 60 days.
Magnitude - Consensus Estimate Trend for LAD
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Conclusion
Both Carvana and Lithia are well-established players with compelling strengths, but Carvana appears better positioned for future gains.
While Lithia offers diversification and stable cash flows, it faces structural challenges from tariffs, margin compression, and heavy debt that could limit near-term upside. In contrast, Carvana's digital-first, used-car-focused model gives it a strategic edge in a rising-tariff environment, where affordability becomes key. The company has shown accelerating sales growth, improving margins, and strong operational execution, reflected in its surging EPS and EBITDA performance. Though Carvana’s balance sheet remains a concern, its long-term vision of 3-million-unit sales and industry-leading margins highlights its potential to redefine auto retail.
Backed by upward-trending estimates and strong price momentum, CVNA has a Zacks Rank #2 (Buy) versus LAD’s Zacks Rank #3 (Hold). For investors seeking high-growth exposure in the evolving auto retail space, Carvana offers a more compelling opportunity today.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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