Used car marketplace, ACV Auctions, goes public as car rental stocks benefit from COVID

First there was Carvana ($CVNA) disrupting how consumers purchased used cars (known for its car vending machines).

Now there’s ACV Auctions — an online wholesale marketplace disrupting how dealerships purchase used cars to resell — which went public on Mar. 24.

The online used car market is a massive opportunity

• Used car market is twice the size of the new car market
• 41m used vehicles sold annually in the US

Historically, dealerships purchased their inventory of used cars via in-person auction places. Founded in 2015, ACV Auctions operates an online marketplace for dealerships and suppliers to buy/sell used cars.

ACV generates fees from cars sold/purchased on its marketplace while making additional income on arranging delivery, providing financing and offering insurance.

How COVID benefited use car sales

ACV relies on selling to dealerships, which were forced to shut down at the start of COVID. Rather than harming used car sales, COVID benefited the industry:

• Global supply chains were halted — leading to a shortage of new cars and a surge in used car sales.
• In-person used car wholesale auctions were shut down — forcing dealerships to explore online auctions (i.e. ACV Auctions)
• More people moved from public transportation to personal owned vehicles — increasing used-car sales.

Carvana ($CVNA), a direct-to-consumer used car retailer, also saw a surge in demand during COVID. For ACV, 2020 became a massive year:

• $208m sales in 2020 — up 95% compared to 2019
• Net loss fell to $41m in 2020 compared to $77m in 2019

For investors… Local & global expansion

The US used car market makes up 36% of the global market and only 391k cars were sold through ACV’s platform in 2020 — less than 2% of the total US market. While ACV has a large domestic opportunity, they’re already looking to expand internationally, starting with Canada in 2022.

The near-term opportunity:

The world is experiencing a global shortage of semiconductor chips is are likely to continue well into 2021. This is creating a shortage in the supply of new cars which is shifting demand towards used vehicles.