There’s a fresh twist in the saga of online used car retailer Carvana, which emerged from the rubble of its post-pandemic implosion in curiously good shape. With competitor Vroom’s 2024 shuttering still fresh in our minds, Carvana’s impressive rebound performance would very much paint the picture of a company that has come back from the brink of disaster just a little over a year ago. But a new report from Hindenburg Research—the same short-selling investment firm behind the infamous Nikola and Lordstown exposés—suggests that beneath the chaos of Carvana’s pandemic-fueled rise, its eventual meltdown, and its recent resurgence, there’s something far more sinister going on.
Hindenburg calls it a deliberate “grift for the ages” perpetuated by the father-son team in charge of the massive online automotive retailer. The report suggests that Carvana’s surge of investment is headed right out the back door to company investors who are cashing out. Meanwhile, it alleges the business has found creative ways of hiding its operating losses elsewhere among its expenses. Paired with a steady stream of subprime car loans, this has helped burnish Carvana’s image in the market with a 284% stock surge. But if Hindenburg is accurate, it’s all fake.
As for the recovery that has happened since? Hindenburg calls it a “mirage,” pointing to a convoluted web of accounting tricks and shady practices, the highlights of which are longer than most investigative deep dives you’ll find online today. We strongly suggest giving it a read. One of the most eye-watering claims says Ernest Garcia II, father of Carvana CEO Ernest Garcia III, sold $3.6 billion in stock between August 2020 and August 2021, just before Carvana’s stock plummeted 99% the following year. Supposedly, with Carvana shares now up roughly 42 times what they were, Garcia II has sold another $1.4 billion in stock.
Just why was Carvana failing in the first place? After all, many customers have great experiences with Carvana, myself included. I sold my 2013 Challenger to the online retailer in August 2020. They paid me way too much for it, and while I’d never buy a car using a similar service, that’s a product of my distrust of buying any automobile sight unseen unless it’s for parts. Plenty of folks liked buying their cars online from Carvana, at least at first. While my experience was smooth, it was just one data point among many. Others have had very, very bad experiences. And as the company expanded rapidly during COVID, things these issues mounted. Eventually, Carvana’s clerical mistakes landed the company in hot water with state authorities.
At first, it seemed like they just came into the market at the worst possible time. Let’s face it—corporate chaos amid the pandemic wasn’t exactly abnormal. And with remote purchasing soaring in popularity during the Covid lockdown, Carvana seemed uniquely positioned to capitalize on an already hot idea. There was just one catch: inflation. Over the course of 2020, used car values exploded. This was great at face value. Carvana was selling a hot commodity, but used cars don’t grow on trees. You have to buy them from somewhere, and that meant that Carvana was paying excruciatingly high prices to keep inventory in stock.
That was fine so long as prices kept going up. Once manufacturing caught up and the new car market returned to normal, used prices declined precipitously. Carvana emerged bursting at the seams with cars for which it had paid sky-high pandemic prices in the face of tanking resale value. It had also been spending a ton of money on infrastructure and expansion when the pandemic hit. Tons of debt, reduced incoming investment, and uncompetitive pricing led to a Wall Street drubbing.
As for what happens next, that may well be up to the SEC. Suffice it to say, the Carvana drama is far from over.