CVNA - Carvana and it's potential future drama

With Carmax earnings approaching, I figured it would be worthwhile to throw something together for Carvana (CVNA) who should be reporting their Q4 2021 earnings sometime in Feb 2022. They have been spending money like crazy on inventory during 2021 to keep up with demand often paying ludicrous prices at auctions for cars much like Carmax which I would suspect lead to lower profit margins. Depending on the outcome of Carmax earnings, it could lead to a similar situation with Carvana. But there is something that sets the two apart greatly. Carvana is a very interesting company due to it’s intermingling of multiple streams of revenue through numerous family businesses.

Carvana Co., is worth nearly $40 billion and sold around 400,000 cars this year. It is still leaning on CEO Mr. Garcia III’s father heavily for support.

Mr. Garcia III spun Carvana out of DriveTime Automotive Group Inc., a 132-dealer chain started in the 1990s by his father, Ernie Garcia II. Mr. Garcia III grew up around the business, and went to work there shortly after graduating from Stanford University in 2005 with entrepreneurial ambitions.

The Garcias took Carvana public in 2017 with agreements to pay DriveTime for various business services. Last year, Mr. Garcia II’s companies took in around $85 million in revenue from providing extended warranties to Carvana buyers, collecting on their loans, and selling or leasing real estate, according to Carvana filings.

Carvana, known for its car vending-machine towers, has continued to strike new related-party deals with companies controlled by the elder Mr. Garcia which according to them “provide the most value in delivering exceptional customer experiences and growing into our opportunity as quickly as possible.”

When Carvana was having trouble meeting customer demand this year, it bought thousands of cars from DriveTime to help catch up. To add buildings for another 1,000 employees at its Phoenix-area corporate campus, Mr. Garcia II bought the land. To help pay for inspection centers getting cars to customers faster, Carvana purchased a building from Mr. Garcia II and sold it for more.

Mr. Garcia II isn’t a Carvana executive or board member but controls around 85% of its voting shares with his CEO son. He has also profited handsomely, selling $3.6 billion of Carvana stock since October 2020. Publicly traded companies often shun related-party transactions because they raise questions about whether shareholders, or the related parties, are getting the best deal in a transaction. They require additional disclosure under accounting rules and securities law.

A Carvana spokeswoman said: “At certain companies, there may be concerns with related-party agreements creating risks for investors,” but she said the roughly 20 times increase in Carvana’s stock since its initial public offering has “presumably resolved any potential concerns.”

Carvana’s share price has rocketed through the pandemic. Despite a recent pullback, it is by far the country’s most valuable publicly traded auto retailer. Investors betting on Carvana’s fast growth have sent the company’s market capitalization to nearly double that of rival CarMax, Inc.

Payments to Garcia family companies represent less than 1% of the company’s overall expenses. The younger Mr. Garcia stands to personally benefit from many of the deals. Public records in Arizona and Texas show Mr. Garcia III is the sole beneficiary of a trust that owns 11.31% of DriveTime and two other companies supplying services to Carvana, Bridgecrest Credit Co. and SilverRock Automotive Inc. With his children, Mr. Garcia III is the beneficiary of a second trust owning another 11.31% of the companies.

The father, Mr. Garcia II, had been in the used-car business since the early 1990s. It was a fresh start after pleading guilty in 1990 to a count of bank fraud for taking out a loan and facilitating a real estate transaction that benefited Charles Keating’s Lincoln Savings & Loan Association before it collapsed.

In a 2013 securities filing, Mr. Garcia II said he pleaded guilty after facing severe financial pressure and received a minimal $50 fine due to his cooperation with the investigation.

Carvana said it could grow quickly in new markets with limited investment compared with bricks-and-mortar dealers. It leased space at DriveTime sites to store and inspect cars, and outsourced resource-intensive collections on customer loans to another company Mr. Garcia II owns.

Some of the deals boosted Garcia family companies. SilverRock, which provides extended warranties that Carvana sells to customers, hit snags renewing an Arizona license in 2018 because it was in negative equity, according to a licensing renewal request to Arizona’s insurance department. It told the department that its financial position was improving from contracts with Carvana and DriveTime, and that it would soon be profitable.

Another Garcia family company, Bridgecrest, saw its loan servicing portfolio more than double to above $10 billion, driven by the Carvana business, according to filings from both companies. It earns between 0.54% and 1.41% in fees for managing loans packaged into public securitizations for Carvana, according to Mr. Scheitzach.

Bridgecrest changed its name from DT Credit Co. after the Consumer Financial Protection Bureau imposed an $8 million fine on its parent company and DriveTime in November 2014 for allegedly harassing borrowers. The companies didn’t admit or deny the findings.

The related-party agreements are important to Carvana’s earnings. Around 12% of Carvana’s gross profit last year, or $93.6 million, came from commissions for selling SilverRock extended warranties.

“They’re at the edge of the envelope,” said Amy Westbrook, a law professor at Washburn University who has studied large startups. “They have a convoluted tangle of interrelated companies and related party transactions, and it’s very difficult to understand or pull apart.” The problem with related-party transactions with large shareholders, she said, is “they don’t need to make money from this entity because they own the other entities.” Carvana “doesn’t have to make money for them to make money,” she said.

Carvana has grown at breakneck speed and has invested heavily, sacrificing profits to gain market share. It has yet to turn in a full-year profit. One big cost is building a national network of inspection centers to process cars. It has a goal to sell two million vehicles a year.

To make its money go further, Carvana has been buying inspection sites, selling them and leasing them back for 25 years, so-called sale and leasebacks that are a way for growing companies and retailers to raise cash from real estate. One such deal went through Mr. Garcia II’s real-estate company, Verde Investments Inc. Verde was leasing an inspection center to Carvana in Tolleson, Ariz. It sold the center to Carvana in September 2020 for $21.7 million net book value, according to Carvana company filings. Carvana immediately sold the center for $50 million to a Phoenix investment firm with an agreement to lease back the property for 25 years. The price included building improvements Carvana made.

In December 2019, Verde bought land around Carvana’s Tempe, Ariz., headquarters outside Phoenix and applied to develop a 14-acre campus. It described Carvana as the future land owner with plans to hire 1,000 employees. Verde got planning permission for the development in August.

Carvana is also potentially in the process of building a large vehicle reconditioning facility in AZ.

Carvana lost it’s dealer’s license in NC in Aug 2021 due to failure to deliver on titles for registration and ineligible to renew it until 2022. They are currently being threatened by the State of FL for the same issue of failing to deliver titles. Reports of this issue have also come out of numerous other States. They are also possibly facing a Federal lawsuit because of this.

This company overall just seems sleazy to me. I will be following the news on this over time and may play some puts on this when it comes time for earnings. Like I said, I’m really interested to see how Carmax does with their report for a comparison.


Well I turned out to be wrong in my assumption that Carmax would miss on this earnings report, and they actually reported positively. Surprisingly, the stock started dropping nicely after their report. I assume a large part of this was profit taking, or investors cutting out now because they don’t project Carmax to retain this growth with the pandemic coming to an end even though the used car industry is expected to be on edge until 2023. This was much like other earnings plays in the sense it was better to play on the weeks before earnings, and possibly for a few days after earnings.

I feel we will see the same results with Carvana at their earnings regardless if they are positive or negative. This isn’t even including many negative catalysts coming out against Carvana in terms of losing dealer licenses in NC and possibly FL soon due to title issues, shutting down illegal storage locations after receiving a cease and desist in CA, and multiple vehicle delivery issues being reported.


CNBC interview with Carvana CEO. It would be nice if a company CEO would actually address the cons of their company. He provides a great example of how dance around an interview question. Can’t wait for this thing to drop some more.


What’s up everyone. Here with another update about Carvana to keep this current for their upcoming earnings in February. Hopefully some of you have been playing puts with me on this for the past month and made some decent money. If not, it’s not too late to the game.

More negative press for them recently with a reported former manager going viral on TikTok telling people that Carvana is guilty of selling vehicles to customers with unreported damage to those vehicles.

Carvana is a ponzi scheme in my opinion. I like to think of them as the “Enron” of the automotive world. The CEO and his father are crooks, and it would not surprise me to see charges of fraud come up for them in the future.

Looking around the current market and doing some numbers, my guesstimate is that Carvana is probably averaging $2k-$4k loss per car right now. They also haven’t been very active at auctions over the last few weeks. This is a house of cards midway through it’s tumble downwards.


Made a good bit on Friday with puts here. Definitely looking to play this with you.

1 Like

Estimated earnings date as of now is 02/24/2022. Will keep updated if changed.


Are you playing puts past the 2-24 earnings report or earlier? Seems like they’re in free fall right now.

Mainly looking at $75 puts for 03/18. Those seems to have a nice amount of volume and OI right now. Might play some FD gambles week of earnings. I’m sure OI might be picking up more soon as the date approaches.

1 Like

Update to this thread based on today’s actions.

With the movement on Carvana today, I’m not concerned on this in the slightest. My thesis remains intact that their upcoming earnings will not be stellar.

Carvana was given an upgrade by Morgan Stanley calling it the “apex predator of the auto industry”. They definitely got the predator aspect correct in my book. Seeking Alpha is on my side of this play.

Also, Carvana still has until the end of the month to correct all of their registration issues in FL. If they don’t, FL will pull their dealer license. I haven’t seen any updated news as to this being completed yet. It would be the second State after NC to pull Carvana’s license. Other States having issues with Carvana will probably follow suit.

Screenshot 2022-01-24 at 15-57-50 Stock Wars CarLotz Vs Carvana Benzinga

Carvana is still a dogshit company in my eyes, and I expect to see a drop on earnings regardless of it’s price movement from now until their earnings date.


I’ve been eyeing puts for a while. It appears with the recent drama of the Market, Carvana hasn’t really recieved as much positive algo movement since SPY’S 420 drop.

I decided to get in here at 140 for February, just a small position as of right now. Will look into getting more if we continue to see this downtrend on the daily.

1 Like

Tomorrow is supposedly the day we figure out if CVNA resolved their title issues in Florida. I wouldn’t be surprised if news of losing their license in a fairly important state leads to a quick drop, regardless of wherever the Market goes.

Florida is one of the few states that’s all about owning a car due to the distance between destinations-- which makes the situation jarring that they even allowed themselves into this situation in the first place. I decided to average down my puts EOD Friday for this, so let’s see what both the news and Market brings.


Article yesterday covering all of my arguments about Carvana being a dumpster fire that constantly bleeds money. This just backs up my bearish case even more for their next earnings.


One of these days I’m going to jump in on this play. Seems like it has quite a bit of room to fall still.


Funny I was just about to share this same article here. I for one work in retail automotive. I run one location of a nine store group we have 6 brands I’ve worked for the same group for 15 years. 2021 was far and away our best year in the history of the company that’s been in business for nearly 60 years. In summary if you were in automotive retail in 2021 and didn’t post a profit. You will never post a profit.

1 Like

I work in auto retail and it was a record year for profitability. Caravans can’t seem to turn the corner and their legal issue with titles is finally catching up on them, states won’t tolerate this and it’s not something that can just be swept up plus it’s compounded on them. I think this one has a lot of room to drop yet.


As an independent auto dealer profit margins this last year were good, but my sales were down due to limited inventory. The cost of inventory versus the markup to retail left my profit margins pretty slim at times. So I only bought what I could that made sense to me in terms of flipping for profit. Carvana has been on a kick of just buying any and everything no matter the costs associated. I get trying to grow your business, especially if it’s one that is publicly traded. But Carvana tried to grow too fast by skipping important steps in their growth, and it’s biting them in the ass.


Yeah profits were good this year. Mine weren’t amazing, but inventory was very limited. Especially when Carmax and Carvana are at auction throwing down $5k bids before the car even hits the auction lane. Plus I had a fair amount of trouble with Manheim most of 2021 dealing with arbitration on crap/damaged cars they were selling when they were doing online only auctions. It’s funny to me because from the stories I’ve heard those are the types of cars Carvana has been buying up no questions asked.

1 Like

Appears that Carvana’s license in NC has been renewed after it’s 180 day suspension:

Carvana also was just denied in Michigan to store extra vehicles at a parking lot close to their facility. Having an abundance of inventory to warrant extra storage in a time like this either tells me two things: 1) Carvana has overspent on inventory that isn’t circulating well, or 2) the used car market is also starting to cool off more than what we started to see in December will means sales are currently down. Neither of them sound very bullish to me.


I live a few minutes away from the vending machine and will be curious to see how fast it fills up with cars.

It has what looks like construction garbage in it now.

Article released an hour ago, still no official response and today was the deadline. If nothing were to happen today would this be enough to bring the fall of Carvana?

1 Like