Carvana - Deep Dive & Addressing Hindenburg's Short Claims

Summary

• We initiate our coverage on Carvana, diving into the long-term thesis while also addressing the concerns highlighted by the recent report published by Hindenburg.
• Carvana's differentiation is that it has successfully blended the online marketplace with physical inventory management. Evidently this is really hard to do.
• If Carvana can move through its shaky auto loan situation, which we believe is more likely than not, the company will be in a strong position going forward.
• After weighing up the current risks and the long-term thesis, we believe there is attractive upside for Carvana.

Overview & Brief History

Founded in 2012, Carvana (CVNA) revolutionized the $800bn US used car market by offering a fully online platform to reduce costs and improve the car buying/selling experience for customers. With features like no-haggle pricing, detailed vehicle information, and flexible delivery options, CVNA disrupted traditional dealerships by eliminating much of the stress and inefficiency associated with in-person car shopping.

In its early days, the company relied on a small number of large centralized warehouses for vehicle storage and third-party transport services for deliveries. This meant customers often faced long travel distances to pick up their purchases or had to pay high fees for home delivery. Additionally, relying on external delivery partners led to frequent delays in receiving vehicles, creating a less-than-ideal customer experience.