An attack by shorts caused the strongest collapse in shares of auto dealer Carvana in nearly a year

Quotes of the American online used car store Carvana collapsed at a record pace for more than nine months after the publication of a report by Gotham City Research - a firm specializing in finding unscrupulous companies, Bloomberg writes . The study alleges that the car dealer, whose capitalization soared more than 100-fold in three years, used undisclosed related-party transactions to artificially inflate profits.

Gotham City Research, which specializes in critical reports on public companies and bets on their stock declines, claims that Carvana's profits were overstated by more than $1 billion as a result of receiving a "subsidy" from its related DriveTime used car business. Carvana was created as a division of DriveTime in 2012 before being spun off as a separate business and going public. DriveTime owner Ernest Garcia II is the father of Carvana head Ernest Garcia III, Barron's writes.

Gotham City said the non-public DriveTime's annual report in its possession shows the company had negative cash flow of more than $1 billion for 2023-2024. The short-seller noted that this is when Carvana, which was on the verge of bankruptcy in 2022, began to show profits again. "DriveTime's losses are Carvana's profits," the report's authors wrote.

Carvana shares fell by 14% at the end of the last trading session in New York. The fall in quotations became the strongest since April 2025, Bloomberg noted.

Carvana called Gotham City Research's claims "inaccurate and intentionally misleading." "All of our related party transactions are accurately disclosed in our financial statements and, as previously announced, Carvana will release its 2025 financial report on February 18, 2026," Bloomberg quoted a company spokesperson as responding.

"I don't believe Carvana needs any preferential deals," said Needham analyst Chris Pierce (quoted by Bloomberg). He still believes Carvana offers a better customer experience than most used car dealers and is capable of continuing to gain market share.

Carvana's business recovery from the used-car slump has sent the auto dealer's stock up nearly 130 times, from a low of $3.72 a share at the end of 2022 to $478 last week. The company has been a frequent target for shorts in recent years, with influential trader Jim Chanos repeatedly criticizing Carvana's business model and the now-defunct Hindenburg Research calling the auto dealer's recovery a "mirage." Since January 2025, the year the Hindenburg report came out, Carvana's stock price has more than doubled.

Chief market strategist at Miller Tabak + Co. Matt Maley noted that Gotham's claims are "more detailed" than last year's Hindenburg attack. He said given the company's "extreme" valuation after its stock price soared 227% over the past 10 months, investors prefer to "shoot first and ask questions later."

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