Carvana's Turnaround is a 'Mirage', According to Hindenburg Research

• On Thursday, Carvana was the subject of a short position disclosure by Hindenburg Research, which argued that the company's recent recovery is a "facade" supported by shaky loans and accounting tricks.
• Carvana's loan sales and the business relationship between CEO Ernie Garcia III and his father, Ernest Garcia II, who is Carvana's largest shareholder, are the focus of the report.
• The Hindenburg report's claims could not be confirmed by CNBC, and Carvana declined to provide comment.

On Thursday, noted short seller Hindenburg Research revealed a bet against and claimed that the online used car retailer's recent turnaround is a "mirage" that's being supported by unstable loans and accounting manipulation.

Carvana's loan sales and the business relationship between CEO Ernie Garcia III and his father, Ernest Garcia II, who is Carvana's largest shareholder, are the focus of the report.

Carvana's stock price decreased by approximately 3% on Thursday. Despite this, the company experienced a nearly 400% increase in stock value in 2023, thanks to the successful implementation of a turnaround plan led by Ernie Garcia III.

Carvana declined to comment on the Hindenburg report titled "Carvana: A Father-Son Accounting Grift For The Ages."

According to Hindenburg, it found that $800 million in loan sales were made to a suspected undisclosed related party, and that accounting manipulation and lax underwriting have led to temporary reported income growth, while insiders have cashed out billions in stock.

According to Hindenburg, Carvana is allegedly increasing borrower extensions with the help of its loan servicer, an affiliate of private car dealership DriveTime, which is run by Garcia II. The company appears to be avoiding reporting higher delinquencies by granting loan extensions instead.

CNBC could not immediately verify the claims in the Hindenburg report.

The Garcia family and their control of the company have been a target of some investors, including lawsuits alleging that they run a "pump-and-dump" scheme to enrich themselves.

Carvana went public in 2017 after spinning off from DriveTime.

Ugly Duckling, a bankrupt rental-car business, was transformed into DriveTime by Garcia II, who was convicted of bank fraud in 1990 as part of the Charles Keating scandal.

Despite the fact that Carvana offers its own financing and servicing, it still relies on DriveTime for some of these services and shares revenue from loans. Additionally, the two companies sometimes sell vehicles to each other and Carvana leases facilities from DriveTime.