Amazon plans to sell cars on its site (for the first time). Carsales shares fall almost 5%

Amazon will begin allowing auto dealers to sell cars through its site in 2024, starting with South Korean automaker Hyundai.

Shares in US-listed used car dealers such as Carmax and Carvana as well as new car dealers Lithia Motors and AutoNation all fell around 5-6% overnight.

The move has also dragged Carsales (ASX: CAR) shares around 4.8% lower in afternoon trade on Friday.

The state of play

Amazon announced the plans on Thursday night during the 2023 Los Angeles Auto Show.

Starting in 2024, Amazon will offer a streamlined car-buying experience, allowing customers to browse available vehicles in their area, make a selection and check out on Amazon with their preferred payment or financing methods.

Amazon CEO Andy Jassy said the process will change "the ease with which customers can buy vehicles online." While shoppers are buying cars on Amazon, the dealer is still the end seller.

Why it matters

In August 2021, Carsales purchased a 49% stake in Trader Interactive – A digital marketplace and marketing solutions provider for lifestyle vehicles and commercial equipment industries (e.g. RVs, powersports and trucks).

A year later, the company brought the remaining 51% stake for $1.1bn.

The reason Carsales acquired Trader Interactive was to:

• Leverage the size of the US market: US non-automotive market is 16 times larger than the Australian non-automotive market

• Leverage market leadership: Trader Interactive leads the RV market by 8 times and Powersports by 5 times its nearest competitors

• Strong business model: Over 84% of revenue is recurring and charged on a fixed monthly basis

• Future growth potential: Substantial dealer penetration upside with 70% of the market still addressable.

Trader Interactive delivered $239.4 million revenue in FY23 (up 14% year-on-year) or approximately 25% of Group revenues.

Fear or Fundamentals

It's always a terrifying thought when a trillion-dollar conglomerate lays out plans to muscle its way into what is already a highly competitive sector.

The good thing is that the online sales are isolated to Hyundai vehicles in the US (for now). While Trader Interactive operates in a relatively more niche space consisting of RVs, powersports, commercial trucks and equipment.

From a revenue perspective, most of Carsales' revenue comes from Australia (below refer to FY23 revenues).

• Australia: 42.4%

• North America: 25.4%

• Latin America: 14.7%

• Asia: 11.0%

• Investments: 6.5%

The problem is that the move leaves investors with a lot of uncertainty and the market hates uncertainty.

Will Amazon expand this offering into new markets? Will they aggressively bring on new brands and dealers? Will they sell more than just cars? And how quickly can they do all of this?