The report further alleged that Carvana’s profitability is “far more dependent on related parties than previously disclosed” and that the company benefits from DriveTime’s issuance of debt and what Gotham described as “toxic” auto loans. In addition, Gotham cited what it called accounting irregularities that, in its view, have distorted the retailer’s financial picture.
To support its claims, Gotham released documents purporting to show audited financial statements for DriveTime and Bridgecrest for 2024. The short seller said the records were obtained through a Freedom of Information Act request. CNBC, which first reported on the sell-off, stated it had not independently verified the authenticity of the materials.
Company dismisses allegations
Carvana responded in an emailed statement, calling Gotham’s research “inaccurate and intentionally misleading.” The company said all related-party transactions are fully and accurately presented in its financial disclosures and reiterated confidence in its accounting practices. Carvana also confirmed that it still plans to release its full-year 2025 earnings on Feb. 18, countering Gotham’s suggestion that the retailer might delay filing its annual Form 10-K with the U.S. Securities and Exchange Commission.
Beyond Wednesday’s statement, Carvana did not provide additional detail on the specific issues raised in the report. The company has faced scrutiny over related-party relationships in the past because of the extensive business links between Carvana, DriveTime and Bridgecrest, all tied to members of the Garcia family.
Previous short-seller attention
The latest accusations continue a pattern of skepticism from short sellers toward Carvana’s rapid expansion and unconventional business model, which features multi-story “vending machine” towers that dispense vehicles to customers. Last year, the now-inactive firm Hindenburg Research announced a short position in the stock, arguing that the company’s turnaround strategy relied on unstable auto-loan securitizations and aggressive accounting. Earlier campaigns by other short sellers questioned the scalability of Carvana’s logistics network and the durability of its gross profit margins.
The company’s share price history highlights that volatility. After flirting with bankruptcy concerns in late 2022, Carvana raised new financing, restructured portions of its debt and pursued cost-cutting measures that contributed to a rebound in earnings and cash flow during 2023. Those moves helped propel the stock into the S&P 500, drawing additional interest from institutional investors whose funds track the large-cap index. As of Tuesday’s close, the stock had risen more than 9,500% from its 2022 low, before giving back a portion of those gains on Wednesday.
Focus on disclosure practices
Central to Gotham’s thesis is the notion that Carvana’s public filings understate the extent and financial impact of transactions with entities owned by or affiliated with the Garcia family. Related-party dealings are not prohibited under U.S. securities law, provided they are conducted on fair terms and fully disclosed. Gotham contends that investors have not received a complete picture of the economics involved, particularly with respect to how DriveTime’s debt issuance and Bridgecrest’s loan books interact with Carvana’s business operations.
The short seller also argued that Carvana’s reliance on DriveTime and Bridgecrest for vehicle sourcing, financing arrangements and loan servicing creates potential conflicts of interest that merit closer regulatory and investor scrutiny. By linking profit generation to counterparties that are effectively under common control, Gotham suggested, Carvana may have limited visibility into independent market pricing and credit risk.
Market reaction and outlook
Trading volume accelerated during Wednesday’s session as investors digested Gotham’s 43-page report. Options activity showed elevated demand for downside protection, indicating that some traders expect further share-price weakness in the near term. Analysts at several brokerage firms circulated quick notes to clients, with most indicating that they were reviewing the claims but had not yet reached firm conclusions. None issued immediate rating changes.
Carvana’s next scheduled disclosure is its fourth-quarter 2024 earnings release, set for Feb. 18 alongside its annual report. Market participants will look for additional commentary on related-party transactions, loan performance metrics and any adjustments to previously reported results. The company has not indicated plans to host an investor call before that date.
For now, the sell-off underscores the sensitivity of Carvana’s valuation to questions about its accounting and governance practices. With the stock still up sharply from its 2022 nadir, the coming weeks could test investor confidence as they weigh Gotham City Research’s allegations against the company’s forthcoming audited statements.
Crédito da imagem: Joe Raedle | Getty Images
