Carvana Co. CVNA
Carvana is a CCC+-rated subprime used-car dealer masquerading as a tech disruptor; Spruce Point sees 56-83% downside to $7.50-$19.60, with a credible path to zero.
Thesis
Spruce Point argues that Carvana — billed as the "Amazon of used cars" — is an uneconomical, capital-destructive used-car dealer carrying $350M of CCC+ junk debt, burning $414M of cash annually, and propped up by questionable subprime auto loan sales to undisclosed counterparties paying off-market premiums. Governance red flags abound: CEO Ernie Garcia III, whose father Ernie Garcia II was convicted of felony bank fraud in 1990, controls 90% of votes through Class B supervoting shares, while insiders quietly sell and more than a dozen related-party deals with DriveTime enrich the family. After a badly missed Q4'18, the board awarded management 100% base-salary raises, and Ally Financial is pulling back from Carvana receivables. Applying 0.5x-1.0x 2019E EV/Sales versus the market's tech-like 2.7x, Spruce Point cuts its target to $7.50-$19.60 (56-83% downside) and reiterates Strong Sell, warning Carvana could go to zero.
SCQA
Carvana sells used vehicles through an e-commerce platform — browse, finance, pickup/delivery — and is marketed as the "Amazon of cars," trading at tech-like 2.7x EV/Sales alongside asset-light disruptors rather than auto dealers.
In reality it is a CCC+-rated subprime auto dealer burning $414M annually, propped up by suspect subprime loan sales at off-market rates to undisclosed counterparties while Class B supervoting shares and related-party DriveTime deals enrich the Garcia family.
Short the stock and re-rate Carvana on auto-dealer comps (0.5x-1.0x EV/Sales, versus CarMax 1.3x and TrueCar 1.4x), demand transparency on loan-purchasing counterparties, and reject the tech-multiple framing.
Revised price target $7.50-$19.60 per share — 56%-83% downside — with a credible path to zero if the credit cycle turns, Ally further retrenches, or VSC/consumer-protection violations trigger loan put-backs.
The three reasons
- 1
CCC+ junk-rated subprime auto dealer burning $414M/yr — not an asset-light tech company
- 2
Subprime loan sales at off-market premiums to undisclosed buyers prop up 58% of GPU
- 3
CEO Garcia III's father convicted of felony bank fraud; Class B shares hand Garcias 90% of votes
Primary demands
- Sell or short CVNA shares (Strong Sell recommendation)
- Re-rate Carvana on auto-dealer EV/Sales multiples (0.5x-1.0x), not tech multiples
- Demand transparency on the undisclosed counterparties buying Carvana's subprime auto loans at off-market premiums
- Scrutinize related-party dealings with DriveTime and the Garcia family's supervoting Class B control
- Challenge the 100% base-salary raises awarded to management amid accelerating cash burn
KPIs cited
Pattern membership
Precedents cited
- Spruce Point prior shorts: iRobot (2015/2017), ECHO (Sept 2016), Bazaarvoice (May 2012)
- CFPB fine of DriveTime ($8M in 2014) for consumer-protection violations
- Theranos, Kior, Waste Management, WorldCom — companies that gave board seats to well-known politicians with no industry experience
Composition what's on the 98 slides
Slide gallery ·
Notes
98-page follow-up update to Spruce Point's initial CVNA short thesis, timed to Q4'18 earnings and a Q1'19 guidance suspension. Distinctive cover image of abandoned dealership with burned-out car is a rare visual-metaphor flourish in the short-seller genre. 'Perception vs Reality' (p.16) and 'What Bulls Think vs Reality' (p.97) are strong two-column framings worth studying. 'How This Goes To Zero' table (p.19/98) is a reusable format for short reports. Thesis update re-prices target downward ($9.43-$21.84 → $7.50-$19.60); first named in body as 'A Countrywide Auto Stock Promotion' (cover subtitle). Firm-authored; founder Ben Axler credited on p.3 but no individual signatory on the cover. Short position disclosed in boilerplate disclaimer, but no specific stake size.