• Carvana's stock, which has lost more than 90% this year, could fall further to $1, Morgan Stanley said.

• It revised its base-case range on the used car seller as it sees market fundamentals deteriorating.

• Carvana called the end of the third quarter the "most unaffordable point ever" for buyers who finance vehicle purchases.

Carvana stock, which has lost more than 90% this year, could be driven down further to $1, in part as affordability of used cars declines with interest rates scaling higher, Morgan Stanley said.

The stock seesawed on Tuesday above $7 after falling on Monday and plummeting by 39% on Friday, its worst session on record.

The investment bank established a 12-month base-case range on the shares of $1 to $40 and removed its equal-weight rating in a research note published Friday.

"While the company is continuing to pursue cost-cutting actions, we believe a deterioration in the used car market combined with a volatile interest rate/funding environment (bonds trading at 20% yield) add material risk to the outlook, contributing to a wide range of outcomes," equity analyst Adam Jonas wrote.

Morgan Stanley's bull-case price target on Carvana is $70 a share and its bear-case target is $0.10 a share.

Carvana in its third-quarter conference call last week with analysts flagged affordability issues, as used-car customers have seen monthly payments rise by 160% compared with pre-pandemic levels. For customers that finance their vehicle purchases, the end of the third quarter was the "most unaffordable point ever," Carvana CEO and co-founder Ernest Garcia said.

Morgan Stanley said it remains a believer in Carvana's potential to revolutionize the dealer-business model.

"However, a sharp decline in used car market fundamentals combined with growing debt make the equity outcomes potentially far more dependent on the timing, structure and inputs of subsequent capital raising efforts than on the industry and company specific/operational inputs that drive our model," said Jonas.

Carvana said the 2-year Treasury yield, which has jumped 3.9 percentage points over the last year, serves as a good benchmark for automotive loans. It also said retail prices have dropped roughly 10% in 2022.

The company's third-quarter earnings included an 8% year-over-year drop in retail unit sales to 102,570, with cash and cash equivalents slumping to $316 million from $1.05 billion a year earlier.

Carvana's stock this year through Monday's session tumbled 97%. The shares in volatile trade mid-day Tuesday were up 0.8% to $7.44 after dropping as much as 12% earlier in the session.

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