Carvana’s recent recovery should be the subject of MBA classrooms for years to come. After a massive stumble following a COVID-driven surge, the company has seemingly removed its foot from the grave and recovered. While Carvana stock has rocketed up 284 percent since its low, a recent report from Hindenburg Research suggests that it could all be a mirage.
Carvana grew like wildfire during the COVID-19 pandemic. The company’s online, remote shopping process and home delivery were exactly what car buyers needed during lockdowns. Used car pricing surged, helping Carvana grow quickly, but it also meant the company had to pay more for its inventory. As prices began to normalize, Carvana found itself stuck with tons of stock that would eventually be sold at a loss.
That led to a steep decline for the company, but Carvana appeared to have clawed its way back, raising red flags for some. Hindenburg accused Carvana’s father-son leadership team of running a grift, saying that the investment dollars are flowing right back out of the business, enriching some investors. Additionally, the report claims that Carvana’s finance team used creative accounting to disguise losses as expenses in other areas.
Those are big allegations, but the report goes much deeper. It also accuses the father, Ernest Garcia II, of selling stock worth $3.6 billion before the stock crashed by 99 percent and of selling another $1.4 billion after the stock recovered.
[Photos: Around the World Photos, rblfmr via Shutterstock]
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Source: The Truth About Cars
