Carvana granted option to invest in Slate Auto!

[atx_ev]

Slate came up again on Autoline After Hours this week, regarding the June price release and the Carvana news. As usual, an industry insider guest analyst scoffed at Slate's odds and uttered "niche".

I was surprised by the scornful dismissal. I'm sitting on the fence with Slate. But I still give them 50-50 odds. On the one hand, they might pull a Maverick and be a runaway hit (a half million sold and headed to a million fast). On the other hand, they might be a disaster waiting to happen - a few fanboy sales, and then a whole lot of nothing.

And I don't think anybody has a clue which scenario is going to happen. Had I been that guest, I would have quoted Mr Spock: "No analysis due to insufficient information, Captain.".

Its impossible to predict. I would 100% have bet against airbnb. This is why capitalism works. Decision making is distributed so if you can convince people to fund your idea that everyone thinks is dumb, you get to try it.

Clearly there is a market, but no one really knows how big it is. I do think they should have an insert to create a bench seat as that increases the seating capacity by 50%. You start being able to expand to a family with 1 child which is most families.

Any other system and it is government bureaucrats making those decisions.

 

[sodamo]

Someone, Doctors Do Little, posted a link to a 3rd party bench seat. Likely the way to go initially.

 

[NMNeil]

How does this sound:
Drive your old clunker to Carvana, drive home in a new Slate!

But only in a State where you can buy direct from the manufacturer.
Unless of course Carvana can somehow become a nationwide franchised Slate dealership.

 

[jmason]

The really big plus of Carvana would be if they had the ability to hassle free register Slate vehicles in any state. Getting a Lucid registered in CT was one hoop after another and only took 8 months after an online purchase along with at least 3 temp tags. New and used car dealerships have state regs sewed up to the point that buying a car online is beyond convoluted.

Example — here in CT there’s a Tesla showroom a few miles from me. If I wanted to (I don’t) I could go in and be chatted up about models, specs, etc…everything but PRICE and no way to purchase from the showroom. Have to order online and start the DMV dance. So if Carvana has a magic wand to wash away all that nonsense for Slate purchasing along with doorstep delivery I’m all for it.

 

[cadblu]

The really big plus of Carvana would be if they had the ability to hassle free register Slate vehicles in any state. Getting a Lucid registered in CT was one hoop after another and only took 8 months after an online purchase along with at least 3 temp tags. New and used car dealerships have state regs sewed up to the point that buying a car online is beyond convoluted.

I don’t believe your story with Lucid is unique. I bought a vehicle online in NJ from Driveway.com from a very established dealer network (Lithua Motors). It took nearly 3 months to obtain the NY title. That’s after paying an exorbitant doc fee of $800 and countless emails and phone calls. I expect the DTC model with Slate is much improved.

 

[Blackspots76]

I hope that having the father and son money laundering machine (Carvana) selling these trucks doesn't bite Slate in the ass later on.

 

[Tom Sawyer]

I hope that having the father and son money laundering machine (Carvana) selling these trucks doesn't bite Slate in the ass later on.

Whoa! I had no idea: Link to https://hindenburgresearch.com/carvana/

• Carvana is a $44 billion online car dealer founded in 2012. Its main business is an online platform that allows retail customers to buy and sell used cars.
• Despite facing bankruptcy risks in 2022 and 2023, Carvana’s stock spiked 284% in 2024, with investors believing the company’s worst days are behind it.
• However, our research, including extensive document review and 49 interviews with industry experts, former Carvana employees, competitors and related parties of the company, undertaken over the course of 4 months, shows Carvana’s turnaround is a mirage.
• 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.
• Carvana has told investors for at least 6 years that it is seeking to diversify outside of its relationship with Ally, but thus far has not announced new financing partners.
• After calling off an earlier agreement in principle with Carvana around 2019, a Wells Fargo senior manager told us: “As we dug into it, the more we learned, the less we liked about it.” They cited specific concerns about lax underwriting and related-party loan servicing.
• As subprime auto has declined, Ally has amended its arrangement with Carvana 5 times in the last two years. Each time, Carvana redacts crucial information that would help investors understand the terms of the relationship.
• Over the last 2 years, Ally’s loan book has become increasingly concentrated, with Carvana loans rising from 5% of its consumer auto portfolio to 8.4%. In September 2024, Ally’s stock fell 20% after warning investors that “on the retail auto side, our credit challenges have intensified”.
• Sales to Ally have scaled back year to date through September 2024. Carvana sold $2.15 billion of loans to Ally in the period (~$2.86 billion on an annualized basis), only 35% of total originations. This compares to $3.6 billion in loans or 60% of total originations in 2023.
• One Ally executive told us: “We’ve pulled back from them [Carvana] pretty significantly in 2024. Ally’s Carvana purchase commitment extends to January 2025, posing a near-term risk to Carvana’s business model should it renegotiate on less-favorable terms.
• With Ally pulling back, a new, unnamed buyer has quietly emerged exactly when Carvana needed it. In the past two quarters, Carvana sold $800 million in loans to an “unrelated third party.” The mystery buyer made up 18.3% and 16.3% of total loan sales in Q2 and Q3 2024.
• Lien filings reveal the buyer is likely a trust affiliated with Cerberus Capital, where Carvana Director Dan Quayle is Chairman of Global Investments, indicating the new buyer is an undisclosed related-party, contrary to the company’s claims.
• These suspected financing games are occurring as Carvana faces major economic headwinds— 44% of loans for cars purchased since 2022 are underwater, per a recent survey from CarEdge.
• Carvana’s “originate to sell” model is highly skewed to packaging non-prime and subprime borrower loans. Per a former Carvana director: “I don’t think the model is much different than what we saw with kind of the early 2000 mortgage-backed securities”.
• Almost 44% of Carvana’s loans it sells in ABS deals are non-prime. Over 80% of its recent non-prime ABS deals have weighted average FICO scores in the “deep subprime” range, the riskiest levels, per Morningstar data.
• Carvana’s toxic loan book is a result of lax underwriting standards: “We actually approved 100% of the applicants”— interview with a former Carvana director describing virtually non-existent underwriting standards.
• Carvana has issued over $15.4 billion of asset-backed securities (ABS), which it retains partial interest in on its balance sheet. 60-day delinquencies across its supposedly “prime” borrowers are over 4x industry averages.
• A former Ally executive told us: “Those numbers… my heart might have skipped a few beats…. Those loss numbers are high. The delinquencies across 30/60 buckets are high.”
• Carvana’s subprime loans had the highest increase in borrower “extensions” of any subprime auto issuer, a major sign of stress, per S&P data. Carvana’s extensions more than doubled this year, while most peers saw declines.
• With its market collapsing, Carvana has propped up its numbers through a grab bag of related-party accounting games.
• For example, Carvana’s increase in borrower extensions is enabled by its loan servicer, an affiliate of private car dealership DriveTime, run by Carvana’s CEO’s father. The company seems to be avoiding reporting higher delinquencies by granting loan extensions instead.
• In another example, in 2023, $145 million of “other revenue” or ~8.4% of gross profit came from related parties. This included $138 million of commissions and profit-share from DriveTime.
• Carvana appears to be dumping unreported costs of extended warranties onto related-party DriveTime, resulting in artificially inflated revenue and profitability. We estimate Carvana reports ~58% more warranty income per sale due to the relationship.
• A former Carvana leader told us that warranty reimbursements from related-party DriveTime were “pretty generous… back to Carvana” as a way of showing better revenue to public investors.
• A former director told us: “As a related-party, we’re [Carvana] able to kind of have an agreement that is favorable to pull as much of that profit forward.”
• Additionally, instead of marking down inventory, Carvana can offload cars to related-party DriveTime at a premium. Over the last three fiscal years, Carvana has generated $105 million revenue from selling cars wholesale to DriveTime.
• A former Carvana director responsible for wholesale inventory told us: “[Selling cars to DriveTime is] a lever that’s not talked about. It’s kind of like Fight Club… there’s certain things we don’t talk about, and we don’t talk about DriveTime.”
• Carvana engaged in “sham” deals with DriveTime, along with numerous other improprieties, per allegations in a 2024, 332-page amended class action lawsuit brought by two pension funds, which included information from 12 confidential witnesses.
• These sketchy related-party dealings seem to be enabled by conflicted board members. Carvana’s “independent” audit committee has two individuals that served on the board of related-party DriveTime.
• One “independent” member of the audit committee, Greg Sullivan, was previously suspended by the New York Stock Exchange after he sent money to Carvana’s CEO’s father in contravention of a prohibition order, per legal records.
• Carvana’s CEO’s father, the key shareholder dumping billions in stock, previously pled guilty to felony bank fraud over allegations that he helped a company report fake accounting income through sham transactions. SEC charges also alleged he “signed a falsified letter for [the company’s] auditors”.
• In addition to the grab bag of related-party tricks, Carvana exhibits a litany of other accounting issues.
• Carvana’s CEO has said: “We don’t end up taking the credit risk over an extended period of time.” Yet Carvana’s loans held on its books have increased 50% since 2021, to $553 million in Q3 2024. Carvana uses an accounting treatment that records no loss reserves on these loans at booking.
• A former executive confirmed that Carvana could “move very large amounts of income around quarter to quarter” by holding loan sales over the quarterly line.
• For example, on May 4th, Carvana reported Q1 2023 earnings, showing a 41% y/y decline in loan sales, swinging to negative adjusted EBITDA amidst bankruptcy concerns. CEO Ernie Garcia blamed the delayed loan sales on “uncertainties” in the securitization market.
• Against this backdrop, with the stock price depressed, the Garcias signed an agreement to purchase $126 million in Carvana stock on July 17th, 2023.
• Two days later, Carvana announced the “best quarter in company history,” featuring a massive earnings beat from re-accelerated loan sales, as well as the successful restructuring of its debt. The Garcias are up ~$427 million on those precisely-timed purchases.
• In Q3 2024, Carvana reported $3,497 in retail gross profit per unit, a key metric for investors to understand the profitability from the sale of retail units.
• Carvana inflates this key metric by ~34.5% by dumping an estimated $390 million of selling costs into SG&A annually, in stark contrast to accounting practices at competitors.
• In August, 2023, Carvana told investors its cost reduction measures did not impact quality. But a former reconditioning leader told us otherwise: “They did make an adjustment to the standards, but only for that segment. They call it their economy line. I don’t think they talk about that.”
• Overseeing all this for 10+ years is Carvana’s mid-tier auditor, Grant Thornton, which also has/had a relationship with related-party DriveTime. “We are not doing what the market thinks. We are not looking for fraud… we are not set up to look for fraud” – Former Grant Thornton UK CEO.
• Finally, Carvana is subject to an undisclosed SEC investigation, per Disclosure Insight, a Freedom of Information Act (FOIA) intelligence firm. We think the company should clarify to the market whether it has faced SEC investigations and their status.
• Overall, we think the Garcias will leave shareholders with nothing. At any point in Carvana’s two incredible stock runs, it could have raised significant capital and de-risked its balance sheet.
• Instead, the company has pushed off creditors and engaged in accounting games while the CEO’s father dumps billions in stock. We think Carvana is truly an accounting grift for the ages— we see rough times ahead for both stockholders and bondholders.

 

[KevinRS]

Whoa! I had no idea: Link to https://hindenburgresearch.com/carvana/

1. That is almost a year and a half old, I'd want to know more recent updates.
2. A lot of it involves them selling off risky loans, which could be considered a positive for the company.
3. If Carvana is involved with Slate, it may only be for deliveries, it seems unlikely they would be handling sales and loans.

 

[Tom Sawyer]

1. That is almost a year and a half old, I'd want to know more recent updates.
2. A lot of it involves them selling off risky loans, which could be considered a positive for the company.
3. If Carvana is involved with Slate, it may only be for deliveries, it seems unlikely they would be handling sales and loans.

But the accusations go beyond 'selling off risky loans' and covers bookkeeping & accounting. Or maybe you skimmed past that?

I was never a big fan of Carvana; this helps explain why. Thanks Blackspots76 for the tip.

 

[KevinRS]

But the accusations go beyond 'selling off risky loans' and covers bookkeeping & accounting. Or maybe you skimmed past that?

I was never a big fan of Carvana; this helps explain why. Thanks Blackspots76 for the tip.

I was looking at the fact that selling off those loans was mentioned repeatedly as a negative. As to the rest, it presents as Carvana being a company expected to collapse imminently, with pump and dump happening recently, and being near bankruptcy, but it's a year and a half out of date.

 

[commotoed]

Carvana that constantly under investigation...scary

 

[RobertOne]

Properly managed, the Carvana delivery system could greatly reduce the cost of delivery, whether to the customer directly or through a vending machine. I live about 70 miles from a vending machine, so I'd probably be ok with picking my SLATE up, if it reduced the shipping cost. On the other hand, I have a 2017 Toyota Tacoma to sell when I get my SLATE. I'd be up for selling it to Carvana if the price was right and if they could pick it up at the same time they delivered my SLATE. My point is, this deal could greatly benefit both companies.

 

[Wmc8520]

I have 4 within 250 miles of me. One is only 100 miles. I'm in.

They had one in Indianapolis but it was torn down when they modified the I69 / I465 interchange here.

 

[EV Trek]

I sure hope Carvana (or any other delivery service) doesn't tack on additional costs.

On the cars Carvana sell new now there is free vending machine pickup, or for a fee it will get delivered to your door. Also depending if they have to move it from a storage hub there may be a fee there, then of course you will still be required to pay the manufacturers destination charge.

 

[Hoosier Daddy]

On the cars Carvana sell new now there is free vending machine pickup, or for a fee it will get delivered to your door. Also depending if they have to move it from a storage hub there may be a fee there, then of course you will still be required to pay the manufacturers destination charge.

Anyone know if the same delivery charge regardless of distance all manufactures seem to do is a law or just something they found caused the least buyer anger? If its a law/reg, might kill any savings Carvana could pass on if they are more efficient.