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Brutal Business Update Sends CarLotz Stock Spiraling 22% Lower

By Daniel Miller - May 26, 2021 at 2:59PM

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News that a sourcing partner would pause business with CarLotz sent shares spiraling Wednesday.

What happened

Shares of CarLotz, Inc. (LOTZ -4.47%), a used vehicle consignment and Retail Remarketing business, spiraled as much as 22% lower Wednesday morning before recovering slightly after the company announced a business update.

So what

Management informed investors that one of the company's sourcing partners has paused its consignments to CarLotz due to wholesale market conditions. In a press release CEO Michael Bor said:

The surge in wholesale vehicle prices and the continuing new car chip shortage continues to place limitations on inventory sourcing throughout the industry. This fact, combined with the pause of our profit-sharing account, has created challenges in obtaining our expected inventory levels.

This pausing of sourced vehicles will have a significant impact on its short-term business outlook since this sourcing partner accounted for more than 60% of the cars sold and sourced by CarLotz during Q1.

Row of vehicles in a car lot.

Image source: Getty Images.

Now what

Clearly, this is negative news for investors, but it is something management can offset over the long term. The company plans to continue opening 14 to 16 new hubs, increase its access to trade-ins and auctions, and look to add new sourcing partners. The harsh truth is simply that the business climate will hurt the company's financial results in the near term, especially considering the unpredictable timeline of the chip-shortage recovery for new cars, and its impact on the wholesale and retail auto markets. It could be a while before we see CarLotz stock recover from its 62% decline since its IPO roughly four months ago.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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