Carvana’s (CVNA) shares plunged as much as 20% on Wednesday afternoon after activist short seller Gotham City Research alleged that the American used car retailer’s 2023 and 2024 earnings were “overstated by $1 billion+.”
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According to Gotham, which specializes in forensic financial analysis of publicly traded companies, the retailer’s earnings during these two years relied more on Carvana’s ties to certain parties than the retailer divulged. In particular, the report flagged DriveTime, the private U.S. used-car retailer and in-house auto finance company from which Carvana spun off.
Gotham Links DriveTime to Carvana’s Elevated Earnings
In its report, Gotham noted that leverage from DriveTime propped Carvana’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). It said the figures would not hold up otherwise, as they would not have been enough to cover the retailer’s interest expenses.
The short seller expects Carvana to delay filing its 2025 annual report, as the company will likely need to restate its 2023 and 2024 accounts and amend the numbers on its BLAST asset-backed securities. In addition, Gotham anticipates that Grant Thornton LLP, Carvana’s long-time independent auditor, will step down from its engagement with the retailer.
At the end of 2024 and 2023, Carvana reported “record” adjusted EBITDA of $1.38 billion and $339 million, respectively.
What’s at Stake for Carvana?
Depending on how Carvana responds, Gotham’s accusation could prove inimical to the used car retailer’s rebound efforts, which has seen the firm rise from near bankruptcy in 2022 to joining the benchmark S&P 500 (SPX) index last year.
The allegations could sour Wall Street’s upbeat mood on the company, even as Deutsche Bank analyst Lee Horowitz recently raised his CVNA price target by 52% to $600. The street-high target underscores expectations that the used car retailer could rank among the standout winners if the American economy snaps back in 2026 after weaker growth last year.
In its Q3 2025 earnings results released in late October, Arizona-based Carvana reported a 55% year-over-year growth in its sales.
Is Carvana a Buy, Sell, or Hold?
On Wall Street, Carvana’s shares currently boast a Strong Buy consensus rating based on 16 Buys and two Holds issued by analysts over the past three months. Moreover, the average CVNA price target of $495.29 implies about 28% growth potential.
