The Rashomon of Carvana: Conflicting Narratives in Investment Management
A tale of two Carvana(s): CEO vs Hindenburg Research
Hi! It’s George, thank you for being here.
I’d like to wish you a prosperous, happy, and healthy 2025.
⚠️I will start with a personal story👇🏼: You may skip this part and scroll down to the investment content!
It’s customary to recall your yearly accomplishments. 2024 was an ok year for me (the stock market is up—so are my investments).
I won’t bore you with my accomplishments, except this one:
I didn’t fall sick once.
Ok, that probably sounds boring. But this has been a massive win for me. Considering this is an investment newsletter, I need to justify why I mention it here.
Time = money & being unwell is a massive waste of time, even if it means just being ok but not 100%.
Now I’m generally in good health and I don’t have any medical conditions, but for as far as I can remember until 2024 I suffered from variations of the common cold, including COVID. And it would knock me off for a few days or weeks every time, so this has been a massive time-saving. I attribute it essentially to a change of diet.
I don’t eat super healthy, but I’ve avoided eating highly processed food, reduced alcohol and prioritised organic stuff. I never knew that food had an impact on your immune system until I listened to a nutrition podcast (in French - I had to listen to it because I produce it!).
Or maybe it was just luck. Anyway, this is not medical advice, and I’m not about to embark on a career as health guru like Belle Gibson (who “cured” herself from cancer, until it was proved to be bullshit - the Ted talk is from my next guest Alex Edmans).
Now let’s resume.
I don’t normally follow individual stocks, but some are just impossible to avoid if you follow capital markets, and they fall into two categories: they are massive capitalizations (mag 7) or massive stories. Carvana is the latter. I don’t own it or care about it, but I keep seeing. It doesn’t sound like a super exciting business “online used car retailer”, but it’s “the turnaround story of the year”. The stock went from a low of $4.40 in January 2022 to over $250 in late 2024.
And then, yesterday Hindenburg Research, a notorious short seller, published a report:
A Father-Son Accounting Grift For The Ages
It’s a great opportunity to analyse narratives in investment management because we have two perfectly opposing ones on the same stock. It is either a great turnaround or an accounting grift, it can’t be both or can it?
I have fed the Hindenburg report and the transcript of a podcast interview (leading through crisis)with the founder of Carvana to ChatGPT for this analysis.
How Rashomon works as a metaphor
Rashomon is a 1950 classic by Akira Kurosawa. I think it’s awesome and hasn’t aged, don’t be put off by the black and white. Synposis: a woodcutter and a peasant take refuge beneath a ruined gate. They discuss the trial of a notorious bandit held for rape and murder, each narrating their own version of the tale.
Conflicting Narratives:
In Rashomon, the same event (a crime in the woods) is described by different characters: the victim, the accused, a witness, and a medium channeling the deceased. Each account is self-serving and contradicts the others.
Similarly, the podcast with Carvana’s CEO and the Hindenburg report provide sharply contrasting accounts of the company's performance and practices. The CEO frames Carvana as a resilient, visionary company, while Hindenburg depicts it as a house of cards built on questionable practices.
Subjectivity and Bias:
Rashomon explores how personal biases shape the stories people tell, often to paint themselves in the best light.
The CEO’s podcast emphasizes resilience, teamwork, and a brighter future for Carvana, likely to build investor trust. Meanwhile, the Hindenburg report frames Carvana as a financial risk, potentially influenced by its short-selling position.
Uncertainty of Truth:
In Rashomon, the audience is left unsure which version of events, if any, is true, reflecting the difficulty of discerning objective reality from conflicting narratives.
Similarly, investors must navigate the subjective accounts of Carvana, balancing the CEO’s optimistic turnaround story with Hindenburg’s allegations of manipulation and fraud.
The two perspectives contradict each other in many ways, just like the Rashomon narratives; for example, if we just look at Carvana's turnaround
Podcast (CEO's Perspective): The CEO portrays Carvana's performance as a remarkable turnaround story, emphasizing efficiency, resilience, and a focus on long-term strategy. Challenges like debt and supply chain disruptions are acknowledged but framed as part of a growth journey
Hindenburg Report: It casts Carvana’s turnaround as a mirage, accusing it of relying on accounting manipulations, related-party transactions, and dubious financial practices to appear profitable. It emphasizes solvency risks, subprime lending, and insider cashouts, portraying the company’s current state as precarious
The Carvana CEO interview and the Hindenburg report are narratives
Both the podcast featuring Carvana's CEO and the Hindenburg report leverage storytelling techniques effectively, but their approaches differ significantly in tone, structure, and intent. Here's how they each use storytelling to make their point:
1. Podcast: Inspirational Turnaround Narrative
Both documents use storytelling to engage their audiences and bolster their perspectives.
Carvana CEO is a magnificent storyteller; he sounds amazing on podcasts. Stories matter to him; he uses the term 45 times in the hour-long podcast.
Hindenburg could keep it succinct by saying it’s overvalued (which they do)
Carvana trades at exorbitant valuations relative to online car peers such as AutoNation and CarMax.
and its accounting raises questions. Others have done so before (this is a good one) without narrative power.
Let’s look at them individually:
The podcast with Carvana's CEO employs a hero's journey framework to create an uplifting and motivational narrative:
Elements of Storytelling in the Podcast:
Establishing the Protagonist:
Ernie Garcia III is positioned as a resilient leader navigating adversity. His calm demeanor, strategic decision-making, and focus on long-term goals form the backbone of the story.
He acknowledges past struggles, such as the 99% stock price drop and pandemic disruptions, but frames them as challenges overcome by teamwork and determination【6†source】.
Building Drama:
The podcast recounts harrowing moments like the onset of COVID-19, declining demand, and rising debt. These are framed as significant but manageable obstacles.
It uses vivid language, such as "20 punches to the face," to evoke the emotional toll of navigating through crises【6†source】.
Resolution and Optimism:
The CEO's narrative concludes with a sense of triumph, emphasizing Carvana’s return to profitability, operational efficiency, and growth.
Themes of resilience, teamwork, and shared purpose are central, creating a positive and hopeful story arc.
Relatable and Humanizing Details:
Personal anecdotes, such as drawing parallels between business challenges and sportsmanship, make the story relatable and engaging【6†source】.
2. Hindenburg Report: Forensic Exposé with a Cautionary Tale
The Hindenburg report tells a cautionary tale using investigative storytelling to highlight risks and alleged misconduct:
Elements of Storytelling in the Hindenburg Report:
Framing the Villain:
The report positions Carvana and its insiders, particularly Ernest Garcia II, as central figures in a tale of financial manipulation and self-enrichment.
Allegations of related-party transactions, insider stock sales, and past fraud by Garcia II create an image of corporate governance failure【7†source】.
Unveiling Hidden Threats:
The narrative unpacks complex allegations step-by-step, such as suspicious loan sales, inflated profitability metrics, and reliance on subprime lending.
By presenting these findings in layers, the report builds tension, akin to a detective uncovering a conspiracy【7†source】.
Dramatizing the Consequences:
The report highlights real and potential consequences of Carvana’s alleged actions, including solvency risks, inflated valuations, and parallels to the 2008 subprime mortgage crisis.
Phrases like “an accounting grift for the ages” and references to “toxic loan books” heighten the sense of urgency and danger.
How does the story end?
Kurozawa was often asked: “If you watch the film carefully enough, multiple times can you conclude what really happened?” when I watched it the first time, I thought I had figured it out… because I hadn’t understood the film. There is no answer. The problem of the truth is not meant to be solved.
The big difference is that in the film, all narratives are treated as equal. Whereas in the stock market, narratives can coexist, but one will prevail.
Based on a previous Hindenburg report, on Icahn Enterprises (published in May 2023), Carvana has much to worry about.
But if we look beyond Carvana, what does that tell us about the narratives?
The stock market is a way to transform stories into cash (I can’t find where I saw that first, but it’s a great explanation).
These stories are more or less close to reality, on rare occasions despite the scrutiny of public markets they can be completely misleading.
Unless you are a Hindenburg, it’s almost impossible to debunk a false narrative. That requires careful examination, thorough investigations, a track record. It also needs a compelling narrative, or it won’t get noticed, you may be right fundamentally but the market can ignore you for a long time.
But that doesn’t mean that investors are passive victims of narratives that others build for them. We can exercise critical thinking and this starts by checking our biases. I spoke to Alex Edmans, the author of May Contain Lies about this, and I will be sharing the conversation in the next newsletter.
Bonus: What should you do about the stock?
The Hindenburg report was published after the close, and I’m publishing this before the opening. I guess the stock will open lower?
Again, this is not an investment recommendation. I don’t pick stocks; I monitor and own very few, mostly for fun.
But I had created a crude filter of stocks to avoid on previous podcast conversations.
Alex Johnson warned us against credit-fuelled growth.
Dan Davies' offered a couple of rules for identifying potential fraud:
1. Avoid Previous Fraudsters
Individuals with a history of fraud or financial misconduct may often reappear in questionable ventures.
Carvana Context: Ernest Garcia II (father of Carvana CEO Ernie Garcia III), the largest shareholder, has a history of financial misconduct. He pled guilty to felony bank fraud in the 1990s, involving sham transactions and falsified accounting.
2. Unusually High Growth is Suspicious
This principle highlights that companies with extraordinarily rapid growth above the industry average may be cutting corners or engaging in questionable practices to sustain momentum.
Carvana context: Carvana has reported triple-digit growth rates in the past, followed by a significant turnaround after its near-collapse in 2022 in an industry that’s experiencing moderate to negative growth.
THIS DOES NOT MEAN THAT CARVANA IS A FRAUD OR THAT IT’S A SELL. But it would not have passed the test. I could not own the stocks and thus would always have missed the 280%+ returns it had in 2024 alone.
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