A Carvana used-car vending machine displays vehicles in Miami, Dec. 9, 2022.
Joe Raedle | Getty Images
Shares of Carvana plummeted 14.2% Wednesday following short-seller accusations that the online used retailer overstated earnings with the help of businesses controlled by CEO Ernie Garcia III’s family.
Gotham City Research alleged Wednesday that the online used car retailer, which entered the S&P 500 last month, overstated its 2023-2024 earnings by more than $1 billion, and is “far more dependent on related parties” connected to the family than previously disclosed.
To make its point, the short-seller published the 2024 audited financials of DriveTime Automotive Group, Inc. and Bridgecrest Acceptance Corp. Both companies are owned by Ernest Garcia II, Carvana’s largest shareholder and the father of the online retailer’s chief executive.
CNBC did not independently verify the authenticity of the financial results, which Gotham said it obtained via the Freedom of Information Act.
Carvana stock
Broadly, the firm accuses Carvana’s earnings of being dependent on DriveTime’s debt issuance, “toxic” loans and accounting, and accounting irregularities.
Carvana did not immediately respond for comment on the report from Gotham City Research, which is the latest in a string of short sellers targeting the company in recent years.
Disbanded short seller Hindenburg Research last year disclosed a bet against Carvana, claiming the online used-car retailer’s turnaround was a “mirage” that was being propped up by unstable loans and accounting manipulation.
Shares of Carvana have been on an unprecedented ride for the company since a bankruptcy scare around late 2022. The stock’s price has jumped from less than $5 a share during that time to close Tuesday at more than $477 per share.
Carvana shares closed Wednesday at $410.04, down 14.2% — marking the company’s second-worst trading day in the past year.