Why Carvana Stock Crashed: The Dark Side Of Carvana

Vinod Pandey

Why Carvana Stock Crashed, The Dark Side Of Carvana


Over the past 12 months, Carvana stock is up 750% meaning that if you invested $1,000 at the beginning of 2023, you’d now have $8,500. Hearing this, you’d probably be inclined to think that Carvana is killing it, but if we zoom out a bit more, you’ll see a completely different picture. 

carvana stock crashed graph

Zooming out to 5 years, you’ll see that Carvana stock has actually fallen off a cliff. From its peak in late 2021, Carvana stock literally fell 99% by the end of 2022 from $380 to $3.63. And even with their massive rally over the past 12 months, Carvana stock is still down nearly 90% from the peak. 

Given all the market volatility, high-interest rates, and high inflation, it would be easy to just write off this decline as a stock that was hit hard by the macro environment, but there’s a lot more to this story. From registration and title issues to stolen cars and thousands of complaints. 

During the worst of it, Carvana’s annual losses ballooned to as much as $1.58 billion. As such, Caravana’s decline very much has to do with poor fundamentals as much as it does with a poor macroeconomic environment. But, it wasn’t always like this.


Not too long ago, Carvana was the startup superstar that had revolutionized the used car market. They have made it easier than ever to sell and buy cars all from the comfort of your phone without having to deal with a single car salesman. 

That’s why at their peak, Carvana was worth nearly $70 billion. For perspective, that’s nearly as much as Mercedes Benz, and the only automotive companies that really outshine that number are Toyota and Tesla. 

The good news, however, is that not all is lost for Carvana. In fact, Carvana has been staging one of the biggest comebacks we’ve ever seen. They just posted their first real quarterly profit of $782 million and it seems that the nearly 10X stock recovery is just the beginning. 

But, what about all of the serious concerns regarding stolen cars and invalid titles? Has that been resolved? Well, let’s find out by taking a closer look at the controversial rise, fall, and rise again of Carvana. 


If you think that Carvana has had a controversial past, just wait till you hear about the story of the founders because it’s far more controversial. Taking a look back, the story of Carvana takes us back to a convicted felon named Ernest Garcia II. Garcia the II came from a pretty well-off family in New Mexico. 

His father not only owned a liquor store but he was the mayor of Gallup, New Mexico, so safe to say that Gracia the II grew up with some pretty powerful friends. And in classic villain fashion, Garcia the II wouldn’t waste any time in leveraging these connections to enrich himself which brings us to his first business: real estate development. 

There’s obviously a lot of money to be made with real estate but Garcia the II would often find himself entangled with shady deals. In October of 1990, for example, Garcia the II pleaded guilty to fraudulently obtaining a $30 million line of credit while simultaneously helping a local bank hide their land ownership from regulators. 

This would earn him 3 years of probation and his firm filing for bankruptcy. Having burnt his reputation within the real estate world, Garcia would make the jump to an adjacent industry: car sales. In 1991, he purchased a bankrupt rent-a-car franchise called Ugly Duckling for $1 million. 

He didn’t exactly know how to turn around the renting model, so he would just turn the company into a used car dealership that targeted subprime car buyers. To be honest, Garcia wasn’t really in the business of selling cars but rather handing out loans to delinquent borrowers. 

In fact, as much as 45% of their car loans are delinquent at any given time, and they actually have 370 full-time employees to collect these overdue payments. Selling cars to naive people that they can’t afford and then ruthlessly collecting turned out to be a pretty profitable business model. 

By the turn of the century, the Ugly Duckling was a public company with annual revenues of $600 million. At this point, Garcia decided to rebrand the company in order to move further away from his checkered past leading to the new name: DriveTime Automotive, you might’ve heard of it. 

DriveTime would go on to earn billions of dollars every single year which brings us to the next generation of Garcias: Ernest Garcia III. Garcia the III would follow the classic path of a rich kid's son. He would attend a prestigious university which in his case was Stanford before coming back to join the family business in 2007. 

Oftentimes, these kids are the ones who run the family business into the ground, but that wasn’t the case with Garcia the III. He was determined to take the family business to a whole other stratosphere. He had grown up seeing the rise of the internet and dotcom companies like Amazon and eBay. 

He knew that people weren’t quite ready to make massive purchases like cars fully online just yet, but he speculated that it was just a matter of time. And if anybody had the resources, influence, and power to pull this off, it was him. 

So, in 2012, with the full backing of Drivetime, its executive team, and his father, Garcia the III would launch Carvana. 


With all of that context, it’s really no surprise why Carvana went on to be a massive success. Carvana was no ordinary startup created by a couple of college students. Carvana was a strategic and calculated extension of an already massive family fortune. 

Drivetime, or basically Garcia the II, provided Carvana, or basically his son, with the cars he needed, the financing he needed, the technology he needed, and the expertise he needed. Technically, Garcia the II isn’t one of Carvana’s directors or officers, but don’t let that fool you. 

This was a strategic move to keep Carvana separate from Garcia the II’s past. And behind the scenes, the Garcia’s are not only close but they literally live next to door to each other. Not to mention, Garcia the II is still the company’s largest shareholder with a stake of roughly 25%. 

Also, the father-son duo owns super voting shares in Carvana which gives them full control of the company. But, I think that’s enough about the Garcia family because there’s plenty of controversy to cover regarding Carvana itself. It’s not that Carvana is a direct scam. 

If you order a car, you will indeed get your car, and if you sell a car, you will indeed get your money. But, there’s a lot more to buying and selling cars than just transacting cash and authorizing loans, and this is where Carvana really falls short. 

Over the years, they’ve built up a habit of cutting corners and turning a blind eye to everything that doesn’t directly earn them money such as quality. According to Carvana’s former employees, “They’re not inspecting vehicles. They’re taking cars in with frame damage and not inspecting the frame damage. 

They’re selling you guys cars with unreported accidents and cars with accidents that haven’t shown up on the car facts yet. If you’re out of the seven-day-money-back guarantee period, you’re screwed.” Since these allegations came out, Carvana has gone ahead and put out a bunch of articles about how much they care about quality, but you can take that for what you will. 

Another concerning piece of evidence against Carvana is their management of vehicle titles. Carvana’s lead lawyer, Paul Breaux is facing a whopping 57 criminal charges in the state of Illinois. This includes 27 counts of failure to transfer vehicle titles and 50 counts of improper use of titling and registration. 


Illinois would even go as far as banning Carvana from the entire state on 2 separate occasions. And that’s just the tip of the iceberg. Zooming out, Carvana was selling cars with hit or miss quality, had a bunch of title and registration issues, their lead lawyer was facing dozens of criminal charges, they were facing state-wide bans, they were also facing a class action lawsuit, they were selling stolen cars, and they were getting thousands of complaints through the better business bureau. 

If all of that wasn’t bad enough, Carvana’s cars were usually sold with super high markups. In Q1 of 2023, for example, Carvana boasted a per-car profit margin of an astounding 61%. Why do people agree to pay these ridiculous markups you ask? 

Well, they’re usually just uninformed customers who are sold the vision of convenience and not having to deal with car salesmen, when in reality, it would probably be in their best interest to haggle with a car salesman rather than buy through Carvana.


With all of that being said, this is precisely the type of company that you would want to avoid with a 10-foot pole, yet Carvana would go on to have the run of their lives thanks to the pandemic. 

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The pandemic was basically the best thing that could have ever happened to Carvana. With everyone stuck at home and often scared to go outside, buying a car completely online was a more desirable option than ever. 

Combine this with 0% interest rates and massive stimulus checks, and it wasn’t long before people were casually buying cars from Carvana as if it were a $50 gadget you ordered on a whim from Amazon. Combine this with the chip shortage which made it nearly impossible to buy a new car promptly, and used car prices would skyrocket. 

In fact, for quite a bit of 2022, you could’ve sold your existing car for a higher price than you bought it for. As such, revenue at Carvana would explode from $3.9 billion at the end of 2019 to nearly $15 billion by mid-2022. 

Similarly, Carvana stock would rocket 1100% from the pandemic bottom transforming them from a multi-billion dollar company to a several deca billion company. Eventually, the music would stop playing for Carvana in mid-2022 as Jerome Powell started jacking up rates. 

Given that Carvana’s bread and butter was selling used cars with massive price hikes to uninformed customers who couldn’t really afford them, increasing interest rates really took a toll on Carvana. 

Combine this with the chip shortage finally coming to an end and used car prices cooling down substantially and Carvana would take a big hit on revenue and an even bigger hit to profit which brings us to Carvana’s single biggest issue: burning money. 

Despite selling used cars at far larger markups than virtually anyone else in the industry, the reality was that Carvana was never really profitable. It turns out that buying, shipping, and selling cars across the United States was extremely expensive. 

Not to mention, the hundreds of millions they were spending on advertising per quarter. In fact, this trend only got worse during the pandemic. As their revenue ballooned, so did their losses which peaked at just under $1.6 billion. 

Investors didn’t really mind these losses when revenue was growing multiplefold and car sales were through the roof, but when that narrative changed, so did the sentiment around the stock. If declining revenue and losses weren’t bad enough, Carvana’s corner-cutting over the past decade would finally start coming to light almost in unison. 

And just as all of that was happening internally at Carvana, the entire stock market would take a nosedive due to recessionary fears, high inflation, and high-interest rates. Strong companies like Facebook and Netflix themselves would crash 75%. 

So, it’s not surprising that Carvana, someone with shaky fundamentals was hit even harder. Though, it’s still crazy to think that this led to a full 99% crash. Since then, it’s not really clear how much of the stink Carvana has really cleaned up. 


To be honest, it doesn’t seem like they care to do much more than what regulators and states are forcing them to do in terms of providing a better service. 

However, they have got their act together on the financial side of things just recently posting their first real profit in history of $782 million. And this has been enough for a lot of investors to buy back in. 

But, that doesn’t change that if you’re shopping at Carvana, you should still be more than a bit careful as this is the type of company that you’re dealing with.

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