Shares in Carvana Co fell sharply after short seller Gotham City Research published a report alleging the online used-car retailer overstated earnings through undisclosed benefits linked to businesses controlled by the family of chief executive Ernie Garcia III, according to a report by Bloomberg.
The stock dropped 14% in New York trading, marking its steepest decline in more than nine months, after the report questioned the sustainability of Carvana’s recent turnaround and raised concerns around related-party transactions.
Gotham City Research claimed that Carvana had not fully disclosed the extent of its financial relationship with DriveTime, a privately held used-car retailer and subprime auto lender controlled by Ernie Garcia II, the CEO’s father. According to the report, these ties inflated Carvana’s reported earnings by roughly $1bn across 2023 and 2024, and could lead to delays in the filing of its annual report.
Carvana rejected the allegations, saying the report was “inaccurate and intentionally misleading.” A company spokesperson said all related-party transactions are properly disclosed in its financial statements and confirmed that the firm plans to release its 2025 earnings on 18 February 2026, as previously announced.
Gotham City also argued that DriveTime has taken on additional debt to support Carvana’s recovery, claiming the retailer’s rebound would have been significantly weaker without that support. The report described Carvana’s ownership and governance structure as a risk, noting that the Garcia family controls more than 80% of the company’s voting shares.
The short seller said it believes Carvana’s equity carries substantial downside risk, citing governance concerns and valuation levels following a prolonged rally.
The sell-off follows a dramatic rebound in Carvana’s share price. After falling to around $3 in late 2022, the stock surged to $478 last week, supported by improved sales, cost reductions and seven consecutive quarters of positive net income. Shares had nearly doubled over the past year prior to Wednesday’s decline.
Carvana has been a frequent target of short sellers. Investor Jim Chanos has publicly disclosed a short position in the stock, while Hindenburg Research issued a critical report last year alleging accounting concerns. Despite those earlier attacks, Carvana’s shares more than doubled in the months that followed.
