Quick vendor Hindenburg Analysis on Thursday accused Carvana of working an “accounting grift for the ages” in a bombshell report — sending shares of the used-car retailer tumbling.
Hindenburg — whose report on firms run by Indian billionaire Gautam Adani led to a federal indictment of the mogul final yr — mentioned it took a brief place on Carvana after in depth doc overview and almost 50 interviews with business consultants.
Its report — titled “Carvana: A Father-Son Accounting Grift for the Ages” — accused the Tempe, Arizona-based firm of insider buying and selling and accounting manipulation.
“Our research uncovered $800 million in loan sales to a suspected undisclosed related party, along with details on how accounting manipulation and lax underwriting have fueled temporary reported income growth — all while insiders cash out billions in stock,” the brief vendor alleged.
Carvana shares dropped almost 5% earlier than paring the losses by the closing bell to shut at $199.56, down 2%.
The corporate slammed Hindenburg’s report as “intentionally misleading and inaccurate.”
“We plan to stay focused on executing our plan for another great year in 2025,” a spokesperson advised The Put up.
The corporate, which as soon as confronted chapter, topped analysts’ estimates for third-quarter income when it final reported in October.
Its inventory skyrocketed greater than 300% in 2024 as the corporate reduce prices, restructured its debt technique and improved income below a turnaround plan led by chief govt Ernie Garcia III.
Pre-owned automotive demand has additionally been enhancing over the previous few months, serving to retailers like Carvana.
The corporate went on an expansion-spree throughout the pandemic to capitalize on a scarcity of latest automobiles at the moment, however struggled to promote models at sufficient revenue.
Between August 2020 and August 2021, Garcia III and his father, Ernest Garcia II, offered $3.6 billion price of Carvana inventory.
When shares surged 42% final yr, the chief govt’s father offered a further $1.4 billion in Carvana inventory, the report added.
Whereas rivals within the auto business struggled, Carvana boomed. For each greenback in web revenue it reported, the corporate added $139 to its market cap, the report mentioned.
A former Carvana director mentioned the corporate authorised 100% of its mortgage candidates, Hindenburg claimed.
Carvana additionally acquired some assist from the senior Garcia promoting a few of its vehicles to DriveTime — his son’s automotive dealership — at a premium as an alternative of getting to mark down the worth, Hindenburg mentioned.
Carvana noticed an enormous enhance in borrower extensions in 2024 — the best enhance of any subprime issuer, in accordance with the report. That enhance was because of an affiliate of DriveTime, which allowed Carvana to proceed to increase the loans and keep away from reporting delinquencies, the report mentioned.
A number of lawsuits have been filed towards the father-son duo, together with a 2023 go well with accusing the Garcia household of working a “pump-and-dump” scheme at Carvana to fill their pockets.
Carvana went public in 2017 after it spun off from DriveTime, which was beforehand Ugly Duckling, a bankrupt car-rental enterprise run by Garcia II. He took the corporate non-public and renamed it in 2002.
In 1990, the elder Garcia pleaded responsible to financial institution fraud in reference to Charles Keating’s $150 billion savings-and-loans disaster.
Carvana and DriveTime are nonetheless intertwined in some methods, sharing revenues generated by the loans and promoting automobiles to one another, in accordance with CNBC.
