Buyer Beware: Carvana Is Driving an Auto Lending Crisis

2025 has not been kind to consumer discretionary stocks. Among the 11 S&P 500 sectors, consumer discretionary has posted the fourth-worst performance year to date (YTD). Over the past month, its 2.43% loss has only been surpassed by the communication services (2.84% loss) and materials (2.77% loss) sectors. 

Despite the broad downturn in the sector, a few companies have marked standout performance—most notably Tempe, Arizona-based Carvana (NYSE: CVNA). Shares of the online-only used vehicle retailer are up nearly 62% YTD. 

However, Carvana stock has undergone meteoric rises followed by precipitous declines in the past. From August 2021 to December 2022, for instance, shares of CVNA fell by a staggering 99% from their then-all-time-high. 

Given that history, and recent signs of financial strain, investors may want to take a closer look under the hood before jumping in.

Carvana’s Lending Practices Are Under Scrutiny

On Oct. 1, Carvana hit its all-time high (ATH) closing price of $395.41. But since then, the stock has corrected, giving back more than 18%. Some of that was fueled by the company’s mixed Q3 earnings results, released on Oct. 29. 

The company reported earnings per share (EPS) of $1.03 versus expectations of $1.29—a 26-cent miss. However, it beat on revenue—which was up 54.5% year-over-year—by posting $5.65 billion versus expectations of $5.04 billion. 

Despite the Q3 miss, Carvana’s earnings are expected to grow an impressive 78.25% next year, from $2.85 to $5.08 per share.

That appears to be backed by analysts’ average 12-month price target, which suggests potential upside of more than 28%. 

But the company’s lending practices warrant concern—epsecially when scrutinizing its financing qualifications. Carvana boasts a shockingly high 99% approval rate, regardless of their credit score, and has a minimum income requirement of just $10,000 per year. 

For context, in 2025, the U.S. federal poverty level (FPL) for a one-person household in the 48 contiguous states is $15,650. That means Carvana is willing to approve Americans earning as much as 36% below the FPL to be saddled with auto loans with APRs as high as 27.99%. 

The Hindenburg Report Made Matters Worse

According to a recent report from Hindenburg Research, more than 44% of the loans that Carvana originates are classified as nonprime (credit scores between 601-660), and more than 80% of these fall into the deep subprime category. 

Since the stock has gained more than 510% since the end of 2023, many investors are convinced that its solvency issues are in the past. 

But Hindenburg Research’s findings—which are based on four months of extensive document review as well as 49 interviews with industry experts, former Carvana employees, competitors, and parties related to the company—suggest that “Carvana’s turnaround is a mirage.”  

The report cites that Carvana faces major headwinds, with used vehicle prices down around 20% over the past three years. At the same time, subprime auto loan delinquencies have reached an all-time high. 

Cumulatively, Hindenburg Research found that Carvana’s solvency risks remain in place, underscored by around 26% of the company’s gross profit consisting of sales of its customers’ auto loans to third parties, “largely in the risky subprime and deep subprime space.” 

Carvana’s Concerning Financials Are a Symptom of Its Lending Practices

While the company beat analyst earnings expectations in nine out of the last 12 quarters, Carvana presents several red flags for investors who dig into its financial statements. For starters, at the end of 2024, the company’s balance sheet showed total assets of $8.484 billion. At the same time, Carvana carried $8.484 billion in total liabilities and shareholder equity. 

More recently, Carvana’s net income fell from a quarterly $216 million in Q1 to $151 million in Q3—a 30% decrease. Almost mirroring this trend in the same period, the company’s issuance of debt increased by 30% from $613 million in Q1 to $977 million in Q3. 

When looking at valuation metrics, those red flags climb a bit higher on the pole. The stock’s forward price-to-earnings ratio is currently 114.96, and its forward price-to-book ratio of 50.64. 

Wall Street has taken note of these developments. Current short interest is 5.94% of the float, while institutional ownership stands at less than 57%. 

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