Carvana Stock Dives Following Gotham City Short Report

Carvana Co (NYSE:CVNA) shares are trading lower on Wednesday after short seller Gotham City Research released a critical report alleging accounting issues and inflated earnings. Carvana stock is showing notable weakness. Why is CVNA stock dropping? Gotham Believes Carvana Overstated Earnings Gotham alleges that Carvana overstated its 2023–2024 earnings by more than $1 billion and is "far more dependent on related parties than disclosed." Benzinga has reached out to Carvana for comment on the report. The research firm claims Carvana's adjusted EBITDA is heavily propped up by DriveTime's leverage and argues that without credit support from DriveTime, Carvana's earnings would collapse and adjusted EBITDA wouldn't even cover its interest expenses. Moreover, the report predicts that Carvana's 2025 10K will be delayed, its 2023 and 2024 10Ks will need to be restated and auditor Grant Thornton will ultimately resign. Gotham also alleged DriveTime burned more than $1 billion in operating cash flow and free cash flow over from 2023 to 2024, while generating over $1 billion in financing cash flow through new debt. According to the report, DriveTime's leverage during that period sits between 20x and 40x, well above historical norms. The short‑seller further alleges it found "dozens of loans tied to cars that CVNA sold" appearing on VinAudit reports and on the balance sheet of Bridgecrest, which it says is fully owned by Carvana chairman and major shareholder Ernie Garcia. The Gotham report concludes that Carvana is selling loans to third parties at inflated rates, allowing it to book gains on the sales. This then reportedly allows Bridgecrest to charge those same buyers unusually low servicing fees. Carvana Stock Collapses CVNA Price Action: Carvana shares were down 17.08% at $396.06 at the time of publication on Wednesday, according to Benzinga Pro. The technical indicators paint a concerning picture for Carvana. The stock is currently trading 12% below its 20-day simple moving average (SMA) and 5.3% below its 50-day SMA, suggesting short-term weakness. However, it remains 2.6% above its 100-day SMA, indicating some longer-term strength. The RSI is at 62.69, which is considered neutral territory, while the MACD is above its signal line, indicating bullish momentum. This combination suggests that while the stock is experiencing a pullback, there is still underlying strength that traders may want to watch closely. Image: Shutterstock