Carvana’s millionaire father-son partnership is rapidly losing money.

Published: April 22, 2022
Updated: April 22, 2022
The billionaire father-son team behind Carvana is losing wealth fast
The billionaire father-son team behind Carvana is losing wealth fast

Carvana’s millionaire founders, a father and son combo, are rapidly depleting their fortune.

Carvana Co., a used-car seller, said it faced a “uniquely difficult environment” in the first three months of the year after reporting a larger-than-expected quarterly loss.

This is wreaking havoc on the fortunes of the Phoenix-based firm’s billionaire father-son duo.

According to the Bloomberg Billionaires Index, Ernie Garcia II and Ernie Garcia III have lost more than $11 billion combined this year. They collectively control roughly four-fifths of Carvana, whose shares had fallen 60% this year as of Wednesday, just before the company reported a first-quarter loss of $506 million. At 1:04 p.m. in New York, inventory was down another 7%.

Garcia, Carvana’s chief executive officer, has now lost 60% of his net worth, or approximately $4.1 billion, since the beginning of 2022. That’s a bigger drop than any other U.S. billionaire tracked by Bloomberg’s index, and it’s bigger than Netflix Inc.’s Reed Hastings’ 46 percent drop.

Garcia’s fortune has dropped by 49 percent, or approximately $7.3 billion, though this has been partially offset by gross inventory sales. He began selling Carvana shares in late October 2020, when they had risen to around $200 per share from their pre-pandemic level of around $90. 

According to Securities and Exchange Commission filings, he sold inventory almost every day for the next ten months as shares continued to rise, totaling more than $3.5 billion, or more than a fifth of his stake. His final sale occurred on August 23, about two weeks after the inventory peaked at $376.83 and began a precipitous decline.

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Carvana, which provides a platform for customers to buy and sell used automobiles online, was one of many businesses that benefited from changes in consumer behavior during the Covid-19 pandemic. That business model is struggling as restrictions fade, and car prices remain high.

Following its earnings report, the company stated that it intends to increase its inventory provisioning by $1 billion through Citigroup Inc. and JPMorgan Chase & Co. Garcia III is one of two traders who have expressed an interest in purchasing as much as $432 million in shares. It’s raising another $1 billion in popular inventory.

Carvana, like other pandemic darlings, has attracted a slew of high-profile hedge fund investors.

Tiger Global Management had 7.3 million shares as of December 31, while D1 Capital had 4.2 million shares, making it the company’s third-largest stockholder in the United States.

The billionaire father son team behind Carvana is losing wealth fast

Whale Rock Capital Management, Marshall Wace, and Sculptor Capital Management are among the other notable funds that reported large stakes as of year-end.

Carvana was founded in 2012 by the young Garcia as a spinoff from DriveTime Automotive, his father’s used-car dealership operator. Since going public in 2017, it has come under fire for its ties to companies run by the elder Garcia.

Carvana purchased hundreds of vehicles from DriveTime to meet surging buyer demand during the pandemic and did not disclose that the young Garcia owned a significant stake in DriveTime and other companies that provide services to Carvana, according to the Wall Street Journal in December.

Working with affiliated firms, according to a Carvana spokesperson, provides the agency with a “unique advantage” and allows for faster growth.

“When, after considering reasonable alternatives, we believe a related-party transaction provides the most value to Carvana and its shareholders, we have pursued the related-party transaction and plan to do so in the future,” the spokesperson stated in an emailed statement.

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