Car retailer Carvana promised to shake up the way consumers bought automobiles with their novel vending machine concept which was a novel approach in a market where franchised dealerships still play a large role in the buying experience. While the gimmick of having cars brought to the customer with the use of only a mere token was a fresh idea, the company also had to endure turmoil behind the scenes with a scandal involving vehicle titles nearly bringing the company to its knees. A new report suggests that the company could be heading for another crisis.
New report comes from a troubling source
The report comes from the short-selling investment firm Hindenburg Research with the company also being responsible for similar exposes that took down Nikola Motors and Lordstown Motors with Nikola Motors founder and disgraced CEO Trevor Milton ultimately finding himself in jail due in part to the contents of Hindenburg’s report.
As for Carvana, Hindenburg Research pulled no punches in its report calling the company “a father-son accounting grift for the age.” the report sheds concerns over Carvana’s performance and the quick recovery of its stock price with the figure going from $130 a share in September to $268 a share by the end of December. In addition to the vending machine concept, Carvana also promised to create a buying landscape where buyers and sellers could complete nearly all of the purchasing process online with the company either picking up or dropping off your vehicle from your home. This process worked well during COVID with the company paying high prices to make sure they had plenty of inventory for consumers to choose from. Low inventory and high prices allowed the company to take advantage of pent-up demand and make a massive profit during that challenging time.
However, the auto market began returning to normal in 2022 and this course correction battered Carvana with the company’s stock losing 99% of its value, and Carvana even briefly lost the ability to sell vehicles in Illinois which cut it off from Chicago and some of the lucrative suburban communities that surround the metropolis.
Impressive recovery hides potentially rocky foundations
The company’s recovery since then has been impressive. Hindenburg’s report said the dealer was worth $44 billion, “with investors believing the company’s worst days are behind it.” But Hindenburg Research says that its research “shows Carvana’s turnaround is a mirage.”
The accusations in the report mirror the same basic theme that we have seen in other Hindeburg reports and the laundry list of accusations against Carvana is no exception to this rule. Highlights in the report include a claim that Carvana paid “$800 million in loan sales to a suspected undisclosed related party” and accusing Carvana of “propping up its numbers through a grab bag of related-party accounting games,” including using its loan servicer, an affiliate of the company owned by CEO Ernie Garcia III’s father, to issue loan extensions to avoid reporting higher loan delinquencies. In addition to these charges, Hindenburg also says that “Carvana appears to be dumping unreported costs of extended warranties onto DriveTime a dealer owned by the CEO’s father with these sales allegedly helping to prop up the income Carvana gets off of warranty-related claims.
Carvana denies wrongdoing
For its part, Carvana is fighting back against the report and systematically denies all the assertions made by Hindenburg Research. The company called the report and Hindenburg’s accompanying claims “intentionally misleading and inaccurate” with a company spokesperson saying Hindenburg’s assertions “have already been made numerous times by other short sellers seeking to benefit from a decline in our stock price.” On the surface, the denial seems to point to the strong leverage in stock strategy that Hindenburg has if Carvana’s stock price does fall, and when you combine that with some of the other companies the firm’s reports have managed to bring down, Carvana has a very formidable opponent in that regard.
It remains to be seen how Carvana will do in 2025 as the industry continues its shift back into relative normalcy with a slowdown in EV demand and sales potentially creating a new problem for Carvana when it comes to their inventory of electric vehicles.
Carl Malek has been an automotive journalist for over 10 years. First starting out as a freelance photographer before making the transition to writing during college, his work has appeared on numerous automotive forums as well as websites such as Autoshopper.com.
Carl is also a big fan of British vehicles with the bulk of his devotion going to the Morgan Motor Company as well as offerings from Lotus, MG, and Caterham. When he is not writing about automobiles, Carl enjoys spending time with his family and friends in the Metro Detroit area, as well as spending time with his adorable pets.