Reported by Hindenburg Research

Hindenburg Research’s report on Carvana, titled “Carvana: A Father-Son Accounting Grift For The Ages,” raises serious concerns about the company’s financial practices and insider activities. The report alleges that Carvana’s recent financial improvements are superficial, driven by accounting manipulations and lax underwriting standards, rather than genuine business growth. This facade has reportedly enabled insiders to profit significantly through stock sales, even as the company’s long-term viability remains questionable.

A central allegation involves Carvana’s sale of $800 million in auto loans to a suspected undisclosed related party. Hindenburg’s investigation suggests that these transactions were not conducted at arm’s length, potentially allowing Carvana to manipulate its financial statements to appear more favorable. Such practices could mislead investors about the company’s true financial health.

The report also highlights substantial stock sales by insiders, particularly focusing on Ernest Garcia II, father of Carvana CEO Ernie Garcia III. Between August 2020 and August 2021, Garcia II sold approximately $3.6 billion worth of Carvana stock. Following a significant increase in Carvana’s stock price in 2024, he sold an additional $1.4 billion in shares. These sales occurred as the company’s stock experienced significant volatility, raising questions about the timing and propriety of these transactions.

Hindenburg’s research indicates that nearly 26% of Carvana’s gross profit comes from selling customer auto loans, primarily in the subprime and deep subprime markets. The report suggests that Carvana’s underwriting practices are lax, potentially leading to higher default rates and financial instability. This reliance on high-risk loans could pose significant risks to the company’s financial health, especially in a declining used vehicle market.

The report further criticizes Carvana’s valuation, noting that it trades at a significantly higher sales multiple compared to peers like CarMax and AutoNation. Despite having approximately $4.8 billion in net debt and facing declining used vehicle prices, Carvana’s market capitalization has increased disproportionately relative to its modest net income. This discrepancy raises concerns about the sustainability of its stock price and overall valuation.

Additionally, Hindenburg points out that Carvana’s primary financing partner, Ally Financial, has been scaling back its loan purchases from the company. In response, Carvana has turned to a new, unnamed buyer for its loans. Hindenburg’s investigation suggests that this buyer may be affiliated with Cerberus Capital, where Carvana Director Dan Quayle holds a significant position, indicating a potential undisclosed related-party transaction. Such arrangements could further obscure the company’s financial dealings and pose conflicts of interest.

In summary, Hindenburg Research’s report casts doubt on the legitimacy of Carvana’s reported financial turnaround, alleging that it is built on accounting manipulations, undisclosed related-party transactions, and significant insider stock sales. These practices not only mislead investors but also raise serious questions about the company’s governance and long-term sustainability.

Read full report: https://hindenburgresearch.com/carvana/