Yesterday, Carvana filed its 10-Q for the last quarter, and as usual, I took some time to look into it. Two weeks ago, in “CARVANA – A TICKING TIME BOMB?” I already highlighted numerous red flags about this company; however, none of them was an undeniable smoking gun that could prove beyond a shadow of a doubt the ongoing fraud. Today, I am going to present to you the ultimate proof that this company is cheating on its accounting in order to inflate its revenues and extract cash from banks and private credit lenders.
This last quarter, Carvana reported it sold 155,941 car units to retail, sold 80,369 cars wholesale, and handled 260,805 car units in transactions in its wholesale marketplace in Q3. Remarkable, isn’t it? Especially when these numbers continue to grow while the used car market is reportedly heading in the opposite direction as a whole.
Considering the competition and the growing supply in Carvana’s market, it is fair to expect an impact on business margins at the very least. Nope. Carvana, like a salmon swimming against the current of a river, still reported a chunky ~20% gross profit from buying and selling used cars for a total of $3.14 billion in the first 9 months of 2025.
As a comparison, CarMax, Carvana’s direct competitor and with a business of similar size, has a profit margin of ~10%.
At this point, you might ask yourself what Carvana’s secret is for being so profitable. The answer lies in its “Gains from loan sales” disclosures:
“The total gain related to finance receivables sold to financing partners and pursuant to securitization transactions was $331 million and $224 million during the three months ended September 30, 2025 and 2024, respectively, and $878 million and $541 million during the nine months ended September 30, 2025 and 2024, respectively, which is included in other sales and revenues in the accompanying unaudited condensed consolidated statements of operations.”
Here, Carvana is telling us that ~70% of its $1.27 billion of “other sales and revenues” are gains from selling loans. Considering that Carvana sold $3.1 billion of car loans in the first 9 months of this year, a 28% profit from selling its loans is unrealistic, but not impossible (in pure terms of probability, don’t take me wrong here).
Overall, Carvana sold $3.1 billion of loans so far in 2025 and made $880 million in profits – on top of that, it sold 6 billion in receivables, making $ 403 million in profits. Who bought those is holding highly radioactive subprime earning interest of prime loans, THIS IS THE ONLY WAY CARVANA COULD MARK UP SO MUCH.
Without this blatant fraud, Carvana would have never been able to report a profit since it “miraculously” escaped bankruptcy a few years ago, since the narrative that propelled the stock to jump from $4 to $400 per share would not have been coherent with its business performance.
As if this wasn’t enough, digging through Carvana’s 10-Q, things become even murkier. As we saw earlier, the company considers as gains on loan sales “The total gain related to finance receivables sold to financing partners and pursuant to securitization transactions.” This statement is aligned with cash flow statement items “Originations of finance receivables” and “Proceeds from sale of finance receivables, net” that together account for a $403 million cash inflow in the first 9 months of 2025 (an amount that, very strangely, is similar to the one recorded for the same period of 2024 despite almost 30% lower volumes).
Hold on a second, aren’t “gains related to finance receivables sold” and “gains on loan sales” exactly the same thing? Arguably, they are. Does this mean that there is a chance that Carvana sold some of its finance receivables twice, like First Brands Group did? I will leave this question open.
At this point, it is fair to ask ourselves which financial institution is on the hook in case of a Carvana sudden collapse. From Carvana’s disclosures, we know for sure that Ally Financial is on the hook for $3.2 billion.
However, considering the total volume of finance receivables sold is over $9 billion, it is fair to assume that more financial institutions are exposed to Carvana, and we know that frequent partners of its securitization business are the likes of Wells Fargo, Bank of America, Citigroup, and Jefferies.
To conclude, I believe there is no more doubt about Carvana being a ticking time bomb that can explode anytime and create incredible damage to many banks and private credit lenders. Considering how dependent this company is on raising cash by selling finance receivables and that the market for ABS auto loans is currently frozen due to investors stepping away and, finally, doing some proper due diligence, I personally expect it won’t take long before we see fireworks here.
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