Carvana Co.'s stock took a dramatic 14% dive on Wednesday in New York, the steepest drop since April 2025, after a scathing report from a short seller raised serious questions about the company’s financials.
Carvana, an online auto retailer, faces allegations from Gotham City Research of overstating earnings by roughly $1 billion in 2023 and 2024, with undisclosed support from a related company, DriveTime, controlled by the family of Carvana’s CEO, Ernie Garcia III.
According to Yahoo! Finance, this isn’t the first time Carvana has been in the crosshairs of short sellers. Investors like Jim Chanos have publicly shorted the stock, and a year ago, the now-defunct Hindenburg Research accused the company of accounting discrepancies.
Back in 2022, Carvana weathered a brutal crisis, posting a staggering $1.4 billion loss. Gotham’s report claims that without financial backing from DriveTime, a used-car retailer and subprime lender owned by Ernie Garcia II, father of Carvana’s CEO, recovery would have been far less effective.
DriveTime allegedly took on additional debt to prop up Carvana during its turnaround. The report also suggests Carvana may need to delay filing its annual report due to these issues.
Despite past turbulence, Carvana’s stock had been on a tear, nearly doubling over the last year and rallying 227% over the past 10 months. Shares surged from a low of $3 in late 2022 to $478 just last week.
Ernie Garcia II and Ernie Garcia III together control over 80% of Carvana’s voting shares. Since the start of 2024, Garcia II, worth an estimated $28 billion, has sold $2.4 billion in Carvana stock, while Garcia III, worth about $15 billion, sold over $340 million last year.
These massive sales come as Carvana reported seven straight quarters of positive net income. For investors, the timing of these transactions alongside the short seller’s allegations raises questions about insider confidence.
Critics argue that the close relationship between Carvana and DriveTime creates a risky structure. Gotham City Research warned, “We see this related party construct that is an accident waiting to happen.”
The market’s swift reaction to the report suggests deeper unease about Carvana’s valuation after its meteoric rise. Matt Maley, chief market strategist at Miller Tabak + Co., noted, “When you combine this with its extreme valuation after the 227% rally the stock has seen over the past 10 months, investors are shooting first, and asking questions later.” Carvana, however, pushes back hard against the claims. A spokesperson stated, “This report is inaccurate and intentionally misleading.”
The company also emphasized transparency in its dealings. “All of our related party transactions are accurately disclosed in our financial statements, and as previously announced, Carvana will release 2025 earnings on February 18, 2026,” the spokesperson added.
For those eyeing Carvana, the situation is a stark reminder of the risks tied to high-flying stocks with complex family ties. Proceed with caution—short seller reports, even if contested, can spook markets and erode gains quickly.
From a free-market perspective, Carvana’s story underscores the need for transparency in corporate dealings, especially when family-controlled entities are involved. Investors should dig into the upcoming 2025 earnings report on February 18, 2026, for clarity on these allegations.
Ultimately, Carvana’s future hinges on proving its turnaround is sustainable without hidden crutches. If you’re holding or considering this stock, keep a close watch on independent audits and regulatory filings—don’t just ride the momentum wave.