In this article, noted short seller Hindenburg Research revealed a position against Carvana on Thursday, alleging that the online used-car retailer’s recent turnaround is a “mirage” supported by unstable loans and accounting manipulation. The report, titled “Carvana: A Father-Son Accounting Grift For the Ages,” focuses on Carvana’s loan sales practices and the business ties between CEO Ernie Garcia III and his father, Ernest Garcia II, who is the largest shareholder of Carvana.
Carvana’s stock closed at $199.56 on Thursday, a 1.9% decrease, marking the first close below $200 per share since October. The stock had surged nearly 300% in 2023 due to improved results and cost reductions under a turnaround plan led by Ernie Garcia III. Carvana responded to Hindenburg’s report, calling it “intentionally misleading and inaccurate” without providing specific details.
Hindenburg alleged discovering $800 million in loan sales to a suspected undisclosed related party, along with revelations of accounting manipulation and lenient underwriting practices driving temporary income growth, while insiders sell off billions in stock. The report also claimed that borrower extensions at Carvana are facilitated by the company’s loan servicer, an affiliate of DriveTime, a private car dealership run by Garcia II.
JPMorgan analyst Rajat Gupta dismissed many concerns raised in the Hindenburg report, stating that investors have been aware of these issues for years. BTIG analyst Marvin Fong also downplayed the report, noting that previous short sellers had covered similar topics. The Garcia family’s control of Carvana has previously attracted scrutiny, with lawsuits alleging a “pump-and-dump” scheme to enrich themselves.
Carvana, which went public in 2017 after separating from DriveTime, still relies on the latter for servicing and collections on vehicle financing. The two companies share loan-generated revenues, engage in vehicle sales to each other, and have profit-sharing agreements. Additionally, Carvana leases facilities from DriveTime.
