TLDR
- Carvana (CVNA) stock crashed 14.2% Wednesday, closing at $410.04 after Gotham City Research published a report alleging $1 billion in overstated earnings
- The short-seller claims Carvana manipulated profits through dealings with DriveTime and Bridgecrest, both owned by Ernest Garcia II, father of Carvana’s CEO
- Carvana called the accusations “inaccurate and intentionally misleading” and confirmed its February 18 earnings announcement stands
- Despite the selloff, shares remain up roughly 10,000% from their December 2022 lows when bankruptcy fears loomed
- This marks the latest short-seller attack on Carvana following similar reports from Hindenburg Research and Jim Chanos
Carvana shares took a beating Wednesday. The stock closed at $410.04, down 14.2% for the session.
Gotham City Research sparked the decline. The short-seller published a scathing report accusing Carvana of inflating earnings by over $1 billion.
The timeframe in question covers 2023 and 2024. Carvana reported roughly $550 million in total net income during those years.
Gotham City alleges the online car dealer used shady transactions to boost its bottom line. The report focuses on relationships with DriveTime Automotive Group and Bridgecrest Acceptance Corp.
Ernest Garcia II owns both companies. He happens to be Carvana’s largest shareholder and father of CEO Ernest Garcia III.
According to Gotham City, Carvana depends more heavily on these “related parties” than disclosed. The firm claims it obtained 2024 audited financials from both companies through a Freedom of Information Act request.
The short-seller argues Carvana’s earnings rely on DriveTime’s debt issuance and problematic loans.
Company Denies Everything
Carvana fired back quickly. The company released a statement dismissing the report as “inaccurate and intentionally misleading.”
The auto retailer maintains that all related party transactions appear accurately in its financial statements. Nothing to hide, according to management.
Carvana also pushed back on another Gotham City claim. The short-seller suggested Carvana would need to delay its 10-K annual filing.
Not happening, says Carvana. The company confirmed it will release 2025 earnings on February 18 as scheduled.
Short-Sellers Keep Coming
Carvana can’t catch a break from bearish investors. Multiple short-sellers have attacked the company recently.
Hindenburg Research made waves in January 2025. That firm disclosed a short position and called Carvana’s recovery a “mirage.”
Hindenburg claimed unstable loans and accounting gimmicks propped up the business. Wall Street legend Jim Chanos also bet against Carvana, citing aggressive accounting practices.
Yet the stock keeps climbing. Well, until Wednesday anyway.
The Comeback Story
Carvana nearly died in late 2022. Shares traded below $5 as bankruptcy whispers grew louder.
Management acted fast. The company cut costs aggressively in 2023 and worked out a deal with creditors to lighten its debt load.
The turnaround worked. Shares exploded more than 10,000% from those December 2022 lows.
Last month brought another milestone. Carvana joined the S&P 500, a prestigious club for publicly traded companies.
Tuesday saw shares close at $477. Wednesday’s drop wiped out recent gains and more.
The 14.2% decline ranks as Carvana’s second-worst trading day over the past year. Shares fell to their lowest level since early December.
Investors will get more clarity next month. Carvana reports 2025 earnings on February 18.
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