Carvana Is Cooking Its Books, Hindenburg Research Claims

Carvana may be a house of cards . That ’s accord to investment research and activistic short - selling firm Hindenburg Research ( never a adept sign to be the subject of ire from a company named after a famous disaster ) , whichpublished a report card on Thursdaythat incriminate the on-line used elevator car seller of “ account statement manipulation ” stem from unstable loans that it is using to temporarily prop up its expectation while its father - son ownership squad cash in out .

The report , titled “ Carvana : A Father - Son Accounting Grift For The Ages ” lay claim that Carvana ’s miraculous turnaround over the last two years , which has regard the ship’s company ’s stocknearly 10x in 2023and climbedanother 300%in 2024 afterstaring down bankruptcy in 2022 , is nothing but a “ mirage . ” Hindenburg Research claims that as the share price has rocket , the father of Carvana ’s chief executive officer has cashed out more than $ 1.4 billion in stock .

At the center of the alleged schema is likely some ego - dealings , but to understand the so-called shadiness , it ’s important to first understand how the business model play .

A Carvana vending machine

A Carvana vending machine© Angus Mordant/Bloomberg via Getty Images

When people buy a car from Carvana , a loan originates from the retail merchant , but it then deal those loans to other companies . Its primary emptor for those motorcar loans was Ally Financial , but the bank has since pulled back on its partnership . This may be in part because Carvana ’s underwriting pattern on those loans have been historically funny . Hindenburg notes that Wells Fargo — a company that has dominate the art ofscammyfinancialdealings — called off a partnership with Carvana in 2019 because “ Their underwriting practices were not something that we were particularly comfortable with . ”

What exactly is take place in Carvana ’s underwriting process ? fundamentally , a synthetic rubber mold , agree to the composition . A former director at Carvana told Hindenberg , “ We actually approved 100 % of applicant we did n’t decline for compliance reasons . ” About half of all of Carvana ’s loans are subprime , per Hindenburg , and 80 % of those are “ deep subprime ” , which is the the wild rating uncommitted . Even the fellowship ’s so - called “ prime ” borrower have a 60 - mean solar day delinquency rate four time higher than the diligence average .

All that to say , Carvana car loans are a major risk . Yet the society has found a new buyer for them even as Ally and others release off . allot to Hindenburg ’s research , Carvana has sell $ 800 million in auto loans to what the fellowship has call an “ unrelated third political party . ” The affair is , though , Hindenburg does n’t think this buyer is “ unrelated . ” The business firm believes Carvana is selling its loans to an affiliate of DriveTime , a secret gondola franchise that is owned by Ernest Garcia II — the begetter of Carvana CEO Ernie Garcia III and the largest shareholder in the car trafficker .

Tina Romero Instagram

Hindenburg think that this loan servicer is granting loan extensions to its borrowers so as to make it appear like more of the company ’s loan are in good standing when they would otherwise be considered remiss and risk - laden .

So per Hindenburg ’s digging , it seems like Carvana may have invent its incredible turnaround time by simply approving practically every loan request that come across its desk . This juiced sales and investor rallied behind the party , pushing its lineage monetary value to new high . Meanwhile , Ernest Garcia II start selling off his gunstock , pocket over a billion as bag holders swarm in .

“ Overall , we consider the Garcias will will shareholders with nothing , ” Hindenburg ’s report concludes . “ At any full point in Carvana ’s two unbelievable stock run , it could have raised meaning capital and de - adventure its residue mainsheet . Instead , the company has press off creditor and engage in accounting game while the CEO ’s male parent dumps billions in stock . ”

Dummy