What happened

Shares of Carvana (CVNA 0.29%) were pulling back again today after one Wall Street analyst reiterated a $1 price target and said the company could soon face liquidity issues.

As a result, the stock closed down 8.2%.

A Carvana vending machine tower.

Image soruce: Carvana.

So what

Carvana shares have plunged on fears the company could be entering a death spiral as used car prices fall, losses mount, and it faces a steep debt burden.

In a note this morning, Wedbush analyst Seth Basham said it was unclear whether the company would survive its current liquidity challenges.

Basham called the acquisition of ADESA, a used car auction business, an "albatross around its neck," and said that because of deteriorating industry and macroeconomic conditions, the company could run out of cash by early 2024. The analyst thought Carvana could see some kind of cash infusion in the next few months, but even with that, bankruptcy is still a real possibility.

Carvana said in its most recent earnings report that it has more than $4 billion in liquidity, but nearly all of it is tied to its vehicle inventory and real estate, both of which may be losing value. The company is also carrying more than $6 billion in debt, following the ADESA acquisition, which is costing it more than $600 million in annual interest expense.

Carvana's biggest creditors have formed a cooperation agreement to work together in the event of a default.

Now what

The macroeconomic picture also got weaker for Carvana this week as the Federal Reserve raised interest rates and called for 75 more basis points more of hikes next year, and the Consumer Price Index earlier in the week showed used car prices continuing to fall, down 2.9% from October.

Carvana could use some help from the broader economy here. If used car prices continue to fall and the economy heads toward a recession, further financial trouble may be unavoidable for the online used car dealer.