dow

Dow Tumbles More Than 1200 Points After Inflation Data

US stocks plummeted Tuesday after the latest Consumer Price Index report showed inflation rates are still at a 40-year high. The Dow fell more than 1200 points on its worst day since June 2020.

The report revealed that monthly consumer prices rose more than expected in August. History shows that low unemployment and rising inflation often precede a recession. High inflation rates erode consumer purchasing power. They also decrease companies’ profits due to rising material costs, causing stocks to fall and economic activity to slow down.

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Matt Peron, director of research at Janus Henderson Investors, agreed with most analysts that the Federal Reserve will likely increase the federal funds rate higher to cool off the market.

 “The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes.”

The Fed responds to rising inflation by increasing the federal funds rate. In the wake of the pandemic, the rate sat at near zero in an attempt to stimulate the economy. The Fed then hiked rates from a range of 0.25% to 0.50% in March 2022 to a range of 2.25% to 2.5% in July 2022. The rate of increase in borrowing costs was the fastest since the 1980s.

When the Fed raises the federal funds rate, the cost of credit throughout the economy increases and loans become more expensive for businesses and consumers, since interest payments are higher. At the same time, people with savings in banks earn more interest on their deposits. Together, this drops the amount of money in circulation, bringing down the inflation rate. However, if the Fed increases the federal funds rate too high, it may also trigger a recession by slowing economic activity too much.

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The Fed is expected to keep hiking the federal funds rate until a sustained drop in consumer price inflation. Investors hoped that the Fed would keep its interest rate increases at a slower speed, with analysts predicting a federal funds rate of 3.4% at the end of the year. Brian Jacobsen, a senior investment strategist at Allspring Global Investments, told Reuters his concerns.

“The big risk is that next week, the Fed tries to convince the markets that they’re not going to just try to go for 4% with the Fed funds rate, but that they could push it to something closer to four and a half percent.”

All three major US stock indexes — S&P 500, the Dow, and Nasdaq had their most significant one-day percentage drops in over two years. The CBOE volatility index, which measures the market’s expectations for volatility over the next 30 days, rose to 25.74 points.

The next Federal Reserve meeting is scheduled for Sept. 20.

 

twitter

Judge Rules Elon Musk Can Use Whistleblower Claims in Twitter Lawsuit

Twitter paid $7 million to former security chief Peiter Zatko before he filed a whistleblower complaint against the company. A judge has ruled that Zatko’s allegations can be part of Elon Musk’s defense in his legal battle with Twitter.

Zatko alleges the social media giant covered up known security issues and used weak safeguarding measures to protect its users’ sensitive data.

The settlement between Zatko and Twitter occurred before Zatko filed his whistleblower complaint in July and concerned Zatko’s lost compensation after being fired from the company in January. It contained a nondisclosure agreement restricting him from speaking poorly about the company or releasing information about his time as cybersecurity head at Twitter.

The settlement contained a clause that allows him to speak at congressional hearings and governmental whistleblower complaints, as many NDAs do.

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On Tuesday, Zatko will testify before the U.S. Senate Judiciary Committee about his knowledge of the security flaws in Twitter’s infrastructure. Zatko claims that he “uncovered extreme, egregious deficiencies by Twitter in every area of his mandate.”

Employees had access to integral company software, which led to the “commandeering of accounts” held by high-profile figures. Several heads of state, government officials and well-known celebrities have long used the website to communicate with the public.

Since July, Musk has been trying to back out of his deal to buy the company for $44 billion. Twitter has begun a legal battle against him, citing Musk’s bad faith in breaching his contract with the company. In a 62-page legal document, Twitter documented Musk’s behavior throughout the ordeal with colorful language and photos of his many tweets regarding the acquisition.

“Having mounted a public spectacle to put Twitter in play and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he—unlike every other party subject to Delaware contract law—is free to change his mind, trash the company, disrupt its operations, destroy stockholder value and walk away.”

Musk’s lawyers plan to use the information Zatko divulged about Twitter’s security vulnerabilities as a central part of their case. Twitter’s shareholders will also cast votes on Musk’s takeover of the company Tuesday.

Musk’s defense to back out of the acquisition is that the company did not disclose the number of bots its userbase contains, tweeting, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.”

The timeline of Musk’s tech deal with Twitter is erratic and turbulent. The lawsuit document cites many of Musk’s posted memes and tweets, which Twitter’s legal team will use to show how Musk treated the process as an “elaborate joke.” At one point, he responded to a Twitter thread by Twitter’s CEO Parag Agarwal, which explains Twitter’s handling of spam accounts, with a “poop emoji.”

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On April 4, Musk was revealed to be Twitter’s largest shareholder at 9% of the company’s shares.

On April 5, CEO Parag Agarwal announced that Musk would join Twitter’s board of directors with the agreement that Musk could not acquire more than 15% of shares before 2024. Musk had been purchasing shares since January.

On April 10, Agarwal revealed that Musk would no longer be joining the board.

On April 14, Musk offered to buy the remaining Twitter shares for $41.4 billion. In response to this, Twitter adopted a “poison-pill strategy,” which allows other shareholders to buy more shares at a discounted rate if a person or entity purchases more than a certain percentage of common stock without the board’s approval. It is used to prevent a company takeover by a hostile buyer.

On April 25, Twitter agreed to sell itself to Musk for $44 billion.

On May 13, Musk tweeted that the deal was temporarily on hold, citing his concerns about spam accounts. Shares of the company immediately plummeted.

On July 8, Musk tried to terminate the acquisition agreement.

On July 12, Twitter sued Musk for failing to meet contractual obligations.

Zatko’s complaint supports Musk’s allegations about the percentage of bots the website’s user base contains.

“There are many millions of active accounts that are not considered “mDAU,” either because they are spam bots or because Twitter does not believe it can monetize them. These millions of non-mDAU accounts are part of the median user’s experience on the platform. And for this vast set of non-mDAU active accounts, Musk is correct: Twitter executives have little or no personal incentive to accurately “detect” or measure the prevalence of spam bots.”

Twitter believes that Musk started to back out of the deal when Tesla stocks began to decline due to stock market trends. Most of Musk’s wealth is not liquid, and he was planning to finance most of the deal with Twitter using Tesla stock.

twitter

The Long Awaited “Edit” Button Is Finally On Twitter

Twitter announced that they would finally be adding an edit button for those who may have typed something a little fast and accidentally tweeted without reading what they wrote. 

The catch is…the feature comes at an additional cost. 

The new edit function for tweeting has been tested internally within the company and now will be available soon for users who decide to pay for “Twitter Blue,” which is the company’s new subscription service.

According to Wired, users who pay the $5 a month subscription fee will be able to edit their tweets. However, all Twitter users will be able to see if an account has edited their tweets and that they have changed them in their post-publication. 

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When users are finding an edited tweet, it will have a label, icon and a timestamp that shows when the tweet was modified from the original version. Users will also be able to tap the label of the tweet and see the edit history and past versions of the original tweet.

This new news is a complete change for Twitter as around 15 months prior they were telling users “you don’t need an edit button, you just need to forgive yourself.” 

Twitter’s trial period of the new feature will tightly control how exactly users will edit their tweets. 

Those who decide to subscribe to Twitter Blue and gain the new function will have a total of 30 minutes to fix their tweets. 

“Think of it as a short period of time to do things like fix typos, add missed tags, and more,” the company said in a blog post about the new function.

One question that new users of the function are wondering is if 30 minutes is too giving to correct errors within the post.

An employee of Twitter who has knowledge of the new function mentioned that tweets can go viral in half that time to Wired. 

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“If it spotted the unedited tweet within that time, would likely place it behind a notice saying it was disinformation but that doing so may limit the ability for someone to subsequently edit the post,” the employee added. 

The company decided to start off the new function to a small group (those who subscribe to Twitter Blue) to see the response from the public. If the response is positive, there might be a chance that everyone could have access to the new function.

Additionally, if the new subscription service becomes successful and there is a high enough demand for it, Twitter might also be able to generate more revenue. The subscription service also features ad-free articles, custom app icons, themes, bookmark folders and even more.

electric car

Honda and LG Team Up To Build An EV Battery Plant In The United States

In a recent press release, Honda Motor and LG Energy Solution revealed that they are planning to invest $4.4 billion in order to build a new battery production plant for electric vehicles. 

The partners haven’t officially announced where the new production plant will be located, but they are hoping to start construction by early 2023 and prepare for mass production by the end of 2025. 

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“Honda and LG Energy Solution said they picked the US because local production and a “timely supply of batteries” would best position them to succeed in the growing North American electric vehicle market,” according to CNN.

There are ideas that the plant is likely to be built near Marysville, Ohio or Greenburg, Indiana where Honda has huge manufacturing factories located.

The plant is set to produce electric batteries that will be exclusively used for Honda vehicles that are assembled within North America.

“Our joint venture with Honda, which has significant brand reputation, is yet another milestone in our mid- to long-term strategy of promoting electrification in the fast-growing North American market”

Honda’s joint venture with LG is actually part of a larger trend of automakers following Ford, General Motors, Toyota, Hyundai-Kia, Stellantis and VinFast having announced plans for US battery plants. 

With a new US law to start producing more electric cars to cut back on gas, this gives the car manufacturers even more incentive to build the battery plants all across North America.

The new law also includes a tax credit for up to $7,500 that could be used to cover the cost of purchasing an electric car. But in order to receive that credit, the vehicle has to have a battery that was built within North America with 40% of the metals mined or recycled there. 

“Honda is working toward our target to realize carbon neutrality for all products and corporate activities the company is involved in by 2050,” said Honda Chief Executive Toshihiro Mibe.

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Currently, Honda doesn’t have an electric car in their catalog. They are planning on launching an SUV, titled “The Prologue”, in 2024.

By 2030, Japan-based Honda is hoping to have at least 30 electric vehicle models globally and sell exclusively in North America by 2040. 

“Aligned with our longstanding commitment to build products close to the customer, Honda is committed to the local procurement of EV batteries which is a critical component of EVs,” said Mibe. 

The demand for electric vehicles is expected to continuously grow not only in the US but also in other nations due to climate change, pollution and the price of gas continuing to rise.

UK

One Third Of Households In The United Kingdom Facing Poverty Due To Rising Energy Costs 

According to campaigners from the United Kingdom, nearly one third of households in the nation will face poverty by the winter due to increasing energy costs and paying bills that are expected to rise in price even further with the new year. 

According to estimates from the End Fuel Poverty Coalition (EFPC), about 10.5 million households will be in “fuel poverty” for the first three months of 2023. In other words, based on their incomes after they’re done paying their energy bills their household income will fall below the poverty line. 

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The definition of poverty in the UK is any household with an income of less than 60% of the UK median, which stands at £31,000 ($37,500), according to official statistics.

Cornwall Insight is the research firm that provided the data leading to the prediction that one third of households will be impoverished in the winter. The average energy bill is expected to hit £3,582 ($4,335) a year from October, and £4,266 ($5,163) from January; about £355 ($430) a month.

The forecast for 2023 represents a 116% increase in energy bills from their current levels. Fuel prices have been surging worldwide, and in the UK prices are projected to continue to rise by 83% in January. 

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Cornwall Insight, however, also is expecting energy bills will start decreasing in the second half of 2023. The average household bill in the UK has risen by 54% this year due to inflation rates regarding fuel and energy consumption.

The UK government announced a bill in May which introduced a  £15 billion ($18 billion) package of support — including a “£400 ($484) payment to 29 million households from October — to ease the burden of energy bills.”

But Simon Francis, coordinator for the EFPC, said “the latest price estimates meant the current level of government support amounted to a drop in the ocean.”

Craig Lowrey, a principal consultant at Cornwall Insight, said in a Tuesday press release that “if £400 was not enough to make a dent in the impact of [the company’s] previous forecast, it most certainly is not enough now.”

Liz Truss, the UK’s foreign minister and as prime minister, has proposed “cutting taxes to help people struggling with their bills, rather than direct help.”

amazon

Illinois Amazon Warehouse Employees Allege Racially Hostile Work Environment 

Employees at an Amazon warehouse in Joliet, Illinois have filed a complaint with the Equal Employment Opportunity Commission against the company. The employees are alleging that they’ve experienced corporate abuse, racial discrimination, and retaliation. 

According to the official complaint, which was filed Tuesday, a group of Black employees have cited confederate imagery on coworkers clothing, racist death threats written in bathroom stalls, and an overall lack of security/accountability from management to combat the issue. The employees are stating that they’ve been in a racially hostile work environment since late 2021. 

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Tamra Holder is the institutional abuse and women’s rights attorney representing the group. Holder stated that the group is now seeking monetary compensation for emotional duress caused by stressful working conditions, in addition to a change in workplace and acknowledgement of the issue at hand. 

“We don’t know what that amount comes to at this point. But I can tell you that after working in a climate where it’s racially hostile, people are experiencing extreme emotional distress,” Holder said to the media. 

“Our message to Amazon is that their behavior after our cases come to light is only increasing our damages because people are becoming more afraid rather than less.”

Holder also explained that employees have become hesitant to speak out any more regarding these claims due to fear of retaliation from management, especially since the case is receiving media attention now. 

“They are allegedly telling their employees that if they speak out, they will be fired because they signed an agreement to remain silent,” Holder said.

Holder says “former MDW2 employee Tori Davis was the first to make contact with [her] about the warehouse’s work environment.”

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Davis claimed that the death threats were dismissed by Amazon, and she was fired earlier this month after raising concern over the racial issues her and other employees have been experiencing. 

“They were trying to sweep it under the rug. The way that this situation was handled, it was strange,” Davis stated. 

A spokesperson for Amazon, Richard Rocha, issued a statement:

“Amazon works hard to protect our employees from any form of discrimination and to provide an environment where employees feel safe. Hate or racism have no place in our society and are certainly not tolerated by Amazon,” the statement read.

Holder said she “plans to do everything in my power to see the complaint through and ensure that my clients’ voices are heard.”

“I think that they had an opportunity here to make it better. And instead they’re taking a very, very different aggressive stance to make it worse. They are not too big for me and they are not too big for the people that I represent…We are not going away,” she exclaimed.

labor

US Economy Adds 372,000 Jobs In June, Exceeding Expectations 

According to the monthly jobs report from the Bureau of Labor Statistics (BLS), the US economy added 372,000 new jobs in June, exceeding expectations and providing citizens with a surge in hiring. 

The unemployment rate remained around 3.6% as well. In May, 384,000 new jobs were added, so while June’s numbers were slightly lower, it still exceeded economist’s expectations. Economists initially were expecting around 272,700 jobs to be added in June. 

BLS data shows that the US job market is just 524,000 jobs away from pre-pandemic levels where unemployment rates were reaching record lows. 

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Professional business services, leisure/hospitality sectors, and the healthcare industry saw the biggest gains in jobs, with additional increases in food services and warehouse/storage positions. 

The job market in general has been a major force in keeping the US economy strong. The latest Job Openings and Labor Turnover Survey data released “showed there were 11.3 million available jobs in May, or 1.9 positions for every job seeker, along with historically low levels of layoffs.”

America is currently experiencing the highest inflation rates in 40 years, however, wages continue to rise. Average hourly wages were up by 5.1% within the past year, and the labor participation rate is at a steady 62.2%, just 1.2% less than pre-pandemic levels. 

“The job market is still plowing forward even in the face of increasing headwinds and recession fears. Even if the economy is slowing, the labor market remains a point of strength for the recovery. Strong employer demand is supporting solid but slowing job gains,”  Daniel Zhao, Glassdoor senior economist, said in a statement.

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“The employment report does nothing to dissuade Federal Reserve officials from sticking to their interest rate raising plans, looking to send inflation down, and closer to their 2% target. The next key reading for the Fed is the Consumer Price Index due in the days ahead,” ” said Mark Hamrick, senior economic analyst for Bankrate, in a statement. “

An increase in Covid cases in May prevented a lot of Americans from re-entering the job market last month, making the increase even more unexpected. 

Due to the increase in Covid cases in May, around 610,000 people were unable to look for work in June, up from 455,000 in the previous month. This is the first increase in this sector of data since January when the Omicron variant first appeared in the US.

The most recent Household Pulse Survey from the Census Bureau also showed that “the pandemic took more of a toll on Americans’ ability to work in June. Nearly 3.7 million people said they were not working because they were sick with Covid symptoms or were caring for someone who was sick, according to the survey, taken in the first two weeks of June.”

vaping

FDA Orders Juul To Stop Selling E-Cigarette Products

On Thursday, federal health officials from the Food and Drug Administration (FDA) ordered Juul to remove its electronic cigarettes from the U.S. market as it continues to battle against the popular and addictive products that have seen high usage amongst teen groups.

Under the ruling, Juul cannot sell its e-cigarette device, along with its four kinds of tobacco and menthol-flavored Juul pods. It’s a move that dates back to April, when the FDA gained the ability to regulate e-cigarettes and other products that utilize synthetic nicotine.

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“Today’s action is further progress on the FDA’s commitment to ensuring that all e-cigarette and electronic nicotine delivery system products currently being marketed to consumers meet our public health standards,” FDA Commissioner Robert Califf, MD, said.

“We recognize these make up a significant part of the available products and many have played a disproportionate role in the rise in youth vaping.”

The ban only affects the commercial distribution, importation, and retail sales of Juul’s products and not those currently owned and used by a consumer. Juul had previously sought approval from the FDA in regards to its device and pods.

However, the FDA noted that Juul lacked “sufficient evidence” regarding the toxicological profile of their products in order to show their marketing would be appropriate for public health. Additionally, Juul’s studies also raised questions due to conflicting data — particularly in regard to genotoxicity and potential chemicals leaking from their pods — that were not addressed.

While the FDA said it didn’t receive any information that suggests an immediate hazard associated with using Juul products, their ban shows that the lack of health data played a critical part in the regulatory process.

E-cigarettes have become a staple of the country’s current youth. According to the Center for Disease Control (CDC), a 2021 survey found that 43.6% of high school students and 17.2% of middle school students reported using e-cigarettes on 20 or more of the last 30 days. One in four high schools smoke e-cigarettes daily, while that number is one in 12 for middle schoolers.

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The study also found that 53.7% used a disposable device, while 28.7% used a prefilled or refillable pod or cartridge device. Juul was found to have been the fourth-most used brand among students at 6.8% (130,000) behind Puff Bar, Vuse, and SMOK.

It’s another blow for a company that has often been blamed for starting the e-cigarette epidemic. It’s seen its total revenue fall from $2 billion in 2019 — when it possessed 600,000 daily users under 21 — to $1.3 billion in 2021, while its market share has endured similar falls.

That decline in sales can also be attributed to the FDA, which banned flavored e-cigarettes in 2018. Altria, which purchased a 35% stake in Juul Labs for $12.8 billion in 2018, already felt the heat in the form of a 10% stock drop Wednesday. This year, Altria values that stake at $1.6 billion, just 13% of their original purchase.

Meanwhile, the FDA will continue to review and regulate other e-cigarette products, many of which have never been through the application process before. The administration previously stated it’s reviewing 6.5 million applications from 500 companies, and have already rejected over 950,000.

U.S. Consumer Confidence Slips In May Among Inflation

On Tuesday, The Conference Board reported that its consumer confidence index decreased slightly in May to 106.4, a score that — while still a strong number — is down from 108.6 in April (which saw a small increase itself from March).

Meanwhile, the group’s present situation index, which is based on consumers’ assessments of current business and labor market conditions, declined from 152.9 to 149.6. The expectations index, based on consumers short-term outlooks for income, business, and labor, decreased from 79.0 to 77.5.

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“The decline in the present situation index was driven solely by a perceived softening in labor market conditions,” Lynn Franco, The Conference Board’s senior director of economic indicators, said. “By contrast, views of current business conditions — which tend to move ahead of trends in jobs — improved. Overall, the present situation index remains at strong levels, suggesting growth did not contract further in Q2.”

“That said, with the expectations index weakening further, consumers also do not foresee the economy picking up steam in the months ahead. They do expect labor market conditions to remain relatively strong, which should continue to support confidence in the short run.”

The dip in confidence comes after April saw an 8.3% year-over-year rise, which was down from March’s 8.5% year-over-year hike. Also not helping is the producer price index, which saw a jump of 6.9% in April. That’s down from March’s 7.1%, but up from February’s 6.7%.

Even with the Federal Reserve’s attempts to fight inflation by raising interests rates by 0.5% to 1.00%, the soaring prices will likely continue to be a burden to Americans over the coming summer months. One area consumers are being tortured in are rising gas prices, which now sit at a national average of $4.6 per gallon.

The labor market continues to remain a question mark for consumers even after employers added 428,000 jobs in April, keeping the unemployment rate at a pandemic-low 3.6%. Those numbers helped the country keep a 12-month streak of 400,000 or more jobs added.

However, that steady improvement may be misleading. Politico noted that data released by the Ludwig Institute suggests the “true rate of unemployment” (or TRU) is higher than national or local figures show and accounted for 23.1% of the labor force in April.

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“We think it misleads the American people to say, ‘Oh, we’ve got 3.6 percent of America that is unemployed, ergo, a huge percent of the population is employed,’ when in fact they can’t make above a poverty wage,” Ludwig told Politico.

Additionally, Federal Reserve chair Jerome Powell has previously called the labor market “unsustainably hot,” and — in an interview with Marketplace — explained that the demand of labor is inconsistent with low inflation. “What we need to do is we need to get demand down, give supply a chance to recover and get those to align,” he said.

President Joe Biden met with Powell Tuesday, saying afterwards that inflation has become his top domestic priority. “My plan to address inflation starts with the simple proposition: Respect the Fed, respect the Fed’s independence, which I have done and will continue to do,” Biden said.

How Biden deals with inflation could significantly impact his odds of possessing a second term in two years. According to FiveThirtyEight, the President currently sits at a 54.0% disapproval rating (up from 52.4% May 1), with just 40.8% approving of his work. Biden has pointed to the Ukraine invasion and supply chain issues as culprits of inflation woes.

Carvana

Carvana Lays Off 2,500 Employees As It Looks To “Align Staffing With Sales Volumes”

Online automotive retailer Carvana Co. has announced it’s letting go of 2,500 employees — nearly 12% of its workforce — as they look to “better align staffing and expense levels with sales volumes.” Additionally, executives will forgo their pay for the remainder of the year in order to help pay the severances for departing employees.

In a filing with the Securities and Exchange Commission, the Tempe, Arizona-based company referred to the moves as “right-sizing initiatives,” while noting most of the jobs expected to be terminated over the next several weeks are in Ohio and other logistical hubs.

The announcement of the layoffs came the same morning Carvana announced their acquisition of Adesa U.S.’s used vehicle auction — which totals around 56 sites and 6.5 million square feet of buildings — for $2.2 billion.

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“We believe these decisions, while extremely difficult, will result in Carvana restoring a better balance between its sales volumes and staffing levels and facilitate Carvana returning to efficient growth on its mission to change the way people buy and sell cars,” the filing stated.

CEO Ernie Garcia expanded upon the targeting of the company’s operational employees in an email. “I wish the burden were shared more evenly across the company, but our operations teams have grown the most over the last several months and are therefore furthest out of balance with the sales we are seeing,” Garcia — who possesses a net worth of $1.4 billion — said.

Carvana assured they’re looking to provide assistance, resources, and support for those laid off, which includes recruiting and resume assistance, extended healthcare coverage, and continued participation in company programs.

The move has received backlash, with some employees stating on social media they were fired over Zoom, a practice other companies have adopted during the pandemic times. A Carvana spokesperson explained “less than half” of the layoffs were done over Zoom, and they conducted as many in-person conversations as they could.

In the first quarter of 2022, Carvana saw a revenue of $3.497 billion, a year-over-year increase of 56%. The company also sold 105,185 units, a year-over-year increase of 14%. Beyond those numbers reveal a bleaker outlook for Carvana as they posted their first-ever sales decline of $506 million despite a time when car demand and sales are at record highs.

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Carvana, known for its hard-to-miss “car vending machines,” sells only used cars online and delivers them to buyers. As Jalopnik explained, the company’s first quarter collapse could be chalked up to Carvana purchasing a large quantity of used cars in anticipation for rising demand.

However, it’s bet to capitalize on the vehicle surge didn’t pay off when demand swiftly fell due to “rising interest rates, rising fuel prices and macroeconomic uncertainty.” In April, the consumer price index (CPI) for new cars rose 1.1%, while used cars and trucks fell -0.4%.

Supply chain issues have also contributed to the overall downturn of not just Carvana, but countless other companies in multiple industries. Carvana has also seen their stock fallen mightily, as they’re down -256.51 (-86.03%) throughout the last six months. At the time of the news Tuesday, shares fell 5.4% to $36.68.