TLDR
- Carvana (CVNA) stock dropped 14.2% on Wednesday after Gotham City Research accused the company of overstating earnings by more than $1 billion between 2023 and 2024
- The short-seller claims Carvana inflated profits through business dealings with DriveTime and Bridgecrest, both owned by Ernest Garcia II, the company’s largest shareholder and father of CEO Ernest Garcia III
- Carvana reported total net income of approximately $550 million during 2023 and 2024, contradicting Gotham’s allegations
- The company denied the accusations, calling the report “inaccurate and intentionally misleading” and stated all related party transactions are properly disclosed
- Despite the drop, Carvana stock has surged roughly 10,000% since December 2022 when the company faced potential bankruptcy
Carvana stock took a beating on Wednesday. Shares closed at $410.04, down 14.2% from the previous day.
The drop came after Gotham City Research released a report accusing the online used-car retailer of inflating its earnings. The short-seller claims Carvana overstated its 2023-2024 earnings by more than $1 billion.
Gotham City alleges the company relied on business relationships with related parties to pump up its numbers. Specifically, the report points to DriveTime Automotive Group and Bridgecrest Acceptance Corp.
Both companies are owned by Ernest Garcia II. He’s Carvana’s largest shareholder and the father of CEO Ernest Garcia III.
The short-seller published what it claims are 2024 audited financials from DriveTime and Bridgecrest. Gotham says it obtained these documents through a Freedom of Information Act request.
According to the report, Carvana is “far more dependent on related parties” connected to the Garcia family than previously disclosed. The firm also claims Carvana’s earnings depend on DriveTime’s debt issuance and questionable loans.
Carvana Pushes Back Hard
Carvana didn’t take the accusations lying down. The company issued a statement calling the report “inaccurate and intentionally misleading.”
Carvana maintains that all related party transactions are “accurately disclosed” in its financial statements. The company also confirmed it will release 2025 earnings on February 18 as planned.
This contradicts Gotham’s claim that Carvana would need to delay its 10-K annual filing. The 10-K is a comprehensive report companies file with the SEC.
For context, Carvana reported total net income of about $550 million across 2023 and 2024. That’s quite different from Gotham’s allegation of $1 billion in overstated earnings.
Not the First Rodeo
This isn’t the first time short-sellers have targeted Carvana. The company has faced similar accusations before.
Hindenburg Research disclosed a short position on Carvana in January 2025. That firm claimed Carvana’s turnaround was a “mirage” propped up by unstable loans and accounting manipulation.
Legendary short-seller Jim Chanos has also gone after the company. He accused Carvana of using aggressive accounting to boost its results.
Despite these attacks, Carvana stock has been on a wild ride. The company nearly went bankrupt in late 2022 when shares traded below $5.
Since then, the stock skyrocketed more than 10,000%. It closed Tuesday at $477 per share before Wednesday’s drop.
Carvana implemented cost cuts in 2023 and negotiated with creditors to reduce its debt burden. That turnaround effort led to Carvana joining the S&P 500 last month.
Wednesday’s 14.2% decline marked Carvana’s second-worst trading day in the past year. The drop erased the stock’s year-to-date gains.
Shares were on track to close at their lowest price since early December. Carvana plans to release its 2025 earnings results on February 18.
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