From the posting about why they're shorting Carvana:

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.

Even before considering the findings of our investigation, Carvana is exorbitantly valued, trading at an 845% higher sales multiple relative to online car peers CarMax and AutoNation, and a 754% premium on a forward earnings basis. The company has ~$4.8 billion in net debt and is junk-rated by ratings agencies.

Carvana’s business already faces major headwinds. Used vehicle prices have declined 20.3% in the past 3 years, according to the Manheim Price Index. Subprime auto loan delinquencies are now higher than during the Global Financial Crisis, per Fitch.

Previously, Carvana CEO Ernie Garcia III’s father, Ernest Garcia II, sold $3.6 billion in stock between August 2020 and August 2021. In the year after he stopped selling, Carvana’s stock plunged 99% and faced bankruptcy concerns shortly thereafter.

Since 2023 we see the same trend: Carvana has touted a bright future and posted three consecutive quarters of modest positive net income, an aggregate of $245 million, despite stress in the used auto market.

For every $1 in net income it reported, the company has added $139 in market cap – a $34 billion market cap increase. With Carvana shares up ~42x, father Ernest Garcia II has sold another $1.4 billion in Carvana stock.

As insiders unload stock, the company’s solvency risks remain. Almost 26% of Carvana’s gross profit consisted of sales of customer auto loans to third parties, largely in the risky subprime and deep subprime space. Gain on loan sales represented 2.2x Carvana’s net income in the past 9 months.

Carvana has relied on a purchase commitment agreement with Ally Financial, to which it sold $3.6 billion of vehicle loans in 2023, ~60% of its total originations.