Carvana, a direct-to-consumer online auto retailer, is reporting some of the highest profit per vehicle in the auto retail industry, a performance that stands out as many competitors struggle to expand margins.
The latest wave of attention follows a recent short-seller report from Gotham City Research, which focused on Carvana’s unusually high profitability and the role of Garcia family-owned entities in shaping its financial results.
As Carvana’s performance and unit economics continue to outpace competition, analysts, investors and short sellers are revisiting whether its margins reflect underlying operating performance, financing activity or intercompany arrangements. Some have raised questions about accounting practices in these businesses. Ernie Garcia III is CEO of Carvana, while his father Ernie Garcia II is founder of DriveTime, a privately held used-car retailer and finance company that maintains longstanding commercial relationships with Carvana.
The short-seller report has drawn renewed interest because it reframes longstanding questions about loan sales, securitization and related-party transactions through the lens of earnings quality and capital allocation.
A hybrid retail and financing model
Carvana operates a hybrid business model that combines used vehicle retailing with loan origination, servicing and securitization. The company sells vehicles directly to consumers through online platforms and now physical locations, while generating additional revenue from financing, warranties and ancillary products tied to each transaction.
The company has historically targeted a broad credit spectrum of borrowers, including subprime and near-prime customers, a strategy that expands sales volume but increases reliance on securitization and credit performance assumptions. According to the company’s website, a buyer only needs $10,000 of annual income, regardless of credit, to qualify for financing.
Within this structure, privately held companies controlled by the Garcia family play key roles in the broader retail and financing ecosystem. Alongside DriveTime, there’s Bridgecrest, a lending and servicing company affiliated with DriveTime, which administers auto loans for Carvana customers and packages those loans for sale to investors.
As most CFOs are probably thinking, this structure could complicate the interpretation of Carvana’s unit economics. Profit is generated not only at the point of sale of the vehicle sale but also through credit origination, securitization and intercompany arrangements, making it difficult to isolate the contribution of core retail operations from financing-driven profit.
In a LinkedIn Live session recorded on Jan. 29, Zach Shefska and Ray Shefska, father and son co-founders of CarEdge, a consumer-focused automotive research and car-buying advisory platform, described Carvana’s financial profile as difficult to reconcile with industry benchmarks and with the company’s own historical performance. Their comments reflect broader themes raised in both short seller reports and recent reporting about what’s really driving Carvana’s margins.
During the session, Zach Shefska described Carvana’s model as unusual within the auto retail industry. “Carvana has found a way that no other company has found to make three times as much money,” he said. “They make over $5,000 per used vehicle sold. The average used vehicle gross profit is like $1,500, maybe $2,000 if you’re lucky.”
At a structural level, Carvana’s model resembles the finance arms already being used by major automakers, which combine retail sales with customer lending. The difference for the legacy automakers and their lending arms is that they operate within consolidated corporate structures, allowing investors to see how risk and profit are distributed between manufacturing and financing. In Carvana’s case, key elements of the credit and retail ecosystem sit in a privately held affiliate, making it more difficult to assess where profitability ends and risk begins.
Financial Times reporting and short-seller research have highlighted the extent to which Carvana’s gross profit is tied to loan sales and securitization. The now-shuttered Hindenburg Research previously estimated that a meaningful portion of Carvana’s gross profit comes from the sale of auto loans to third parties rather than from vehicle sales alone. The company has also packaged auto loans into asset-backed securities sold to investors, while retaining limited exposure to their performance.
Related-party relationships, financing structures and earnings quality
Short-seller research and media reporting suggest Carvana’s financial performance cannot be fully understood without examining how profit and risk are distributed across related businesses within the Garcia-family ecosystem. Financial Times coverage has highlighted allegations that intercompany transactions and financing arrangements may influence where earnings appear within the corporate structure, complicating assessments of Carvana’s underlying operating performance.
“When you control all three of the entities involved, you can take something from one entity, ship it over to the other to show that entity being profitable while you’re taking a loss from the first entity.”
Ray Shefska
Co-founder, CarEdge
Zach Shefska pointed to the interaction between Carvana and affiliated entities as a central issue. “When you start to look at the relationship between these three companies, you’ve just got money moving around,” he said. Gotham research suggests this as well, reporting that Carvana’s recent profitability has coincided with losses at privately held affiliates, though those figures are difficult to independently verify because the companies do not disclose full financial statements.
From a financial reporting perspective, these dynamics raise questions about how profit is recognized across the Garcia ecosystem and how related-party disclosures should be interpreted by investors and finance leaders. Ray Shefska framed the issue in structural terms. “When you control all three of the entities involved, you can take something from one entity, ship it over to the other to show that entity being profitable while you’re taking a loss from the first entity,” he said.
Recent reports have also pointed to debt issuance at DriveTime and other affiliates, as well as Carvana’s reliance on loan sales, securitization and non-GAAP metrics, as factors that complicate the interpretation of its financial performance. Hindenburg Research has previously suggested that Carvana’s business model is driven as much by credit monetization as by vehicle retailing, while Financial Times reporting has highlighted concerns about the quality of its loan portfolio and the durability of its margins.
Some reports have credited Carvana’s financial performance as a reason for investors to keep their eye on the company, but credited the potential growth to many of the things that require sound financial practices to execute. Things like continuation of the company’s revenue momentum, margin turnaround, price projections and return profile were all attributed as to why some are bullish on the company’s future earnings potential.
All together, these factors have renewed questions about whether Carvana’s margins reflect improvements in its core retail business or the effects of complicated financing structures alongside intercompany, family-driven arrangements that shape how risk and profitability are distributed across entities.
