Who is Carvana?
Carvana is a roughly $44 billion online used-car dealer headquartered in Tempe, Arizona, founded in 2012 and led by co-founder, Chairman and CEO Ernest Garcia III. Its core business is an e-commerce platform where retail customers buy and sell used cars, accounting for around 70% of revenue. The company also offers financing, insurance and protection plans, and runs the ADESA wholesale auction business it acquired in 2022. Carvana originally spun out of DriveTime, the private used-car chain run by the CEO's father, Ernest Garcia II.
Activ8 Classification
Business Model
Carvana sells used vehicles online and, critically, finances roughly 80% of those buyers itself. Rather than hold the loans, it originates and then sells the vast majority to third parties — booking an immediate "gain on loan sales" that the report says made up about 26% of gross profit over the most recent nine months, equal to roughly 2.2x net income. Historically the largest buyer has been Ally Financial. The company layers on revenue from extended warranties and other ancillary products administered by related-party DriveTime, plus the ADESA wholesale auction operation. In effect, the report argues, Carvana functions less like a car dealer and more like a subprime auto-finance machine dependent on outside buyers for its loans.
Hindenburg Research's Key Allegations
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01
Carvana is alleged to have propped up reported income through a "grab bag" of related-party accounting games with DriveTime — pulling warranty profits forward, selling wholesale cars to DriveTime at a premium rather than marking down inventory ($105 million over three fiscal years), and recognizing roughly 58% more warranty income per sale than peer CarMax.
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02
The report alleges Carvana misled investors about a new loan buyer. Carvana described an entity that bought $800 million of loan receivables as an "unrelated third party," but lien and corporate records reportedly tie it to Cerberus Capital — where Carvana director Dan Quayle is Chairman of Global Investments — indicating an undisclosed related party.
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03
Carvana's "originate to sell" model is alleged to rest on uniquely lax underwriting. A former director said Carvana "actually approved 100% of applicants" not declined for compliance reasons; the report says over 80% of recent non-prime ABS deals carry "deep subprime" FICO scores, with 60-day delinquencies on its "prime" book over 4x industry averages.
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04
The report alleges Carvana inflates its key Retail GPU metric by about 34.5% by dumping an estimated $390 million of selling costs annually into SG&A, and that it can shift large amounts of income between quarters by timing loan sales — booking no loss reserves on loans held for sale.
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05
As the company touted its turnaround, the CEO's father, Ernest Garcia II — previously a felon convicted of bank fraud — is alleged to have sold $1.4 billion in stock over the past year, on top of $3.6 billion sold in 2020–2021. The report concludes the Garcias are using the public markets to cash out while the underlying business deteriorates.
Key Charts
Premiums Carvana trades at relative to online car peers CarMax and AutoNation, before considering the report's other findings. Bars are scaled to the larger figure (the P/S premium = 100%).
Reported sales by the CEO's father, the company's largest insider seller, across two share-price run-ups. Bars are scaled to the larger figure ($3.6B = 100%).
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