Carvana: A Father-Son Accounting Grift For The Ages

submited by

Style Pass

2025-01-03 00:30:04

Initial Disclosure: After extensive research, we have taken a short position in shares of Carvana Co. (NYSE:CVNA). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.

Carvana (NYSE:CVNA) is a $44 billion online car dealer headquartered in Tempe, Arizona. The company was founded in 2012 and is led by co-founder, Chairman and CEO, Ernest Garcia III.

Carvana’s main business is an online platform that allows retail customers to buy and sell used cars, which accounts for ~70% of its total revenue, per the company’s latest quarterly report. [Pg. 2]

The company also runs a wholesale auction business, called ADESA, which it acquired in May 2022. [Pg. 7] ADESA has 56 locations where registered auto dealers can participate in auctions, either virtually or on-site. Carvana also acquires vehicles in these auctions.

Carvana originally spun out of a company called DriveTime – a used car-dealership chain run by Ernest Garcia II, a key Carvana shareholder and a felon convicted of bank fraud in 1990. Garcia pled guilty to charges alleging he helped a company report fake accounting income through sham transactions. SEC charges also alleged he “signed a falsified letter for [the company’s] auditors” as part of the scheme. His son, Ernest Garcia III has been the CEO of Carvana since its inception.