Carvana (NASDAQ:CVNA | CVNA Price Prediction) shares had rallied 13% in 2026, reaching a high of $486.89 per share before a short-seller report from Gotham City Research disrupted the momentum. Yesterday’s report alleged the used car dealer’s finances rely on undisclosed related-party transactions with entities controlled by its largest shareholder Ernest Garcia II — who is also the father of Carvana’s CEO — inflating earnings by over $1 billion and masking its true dependencies.
This echoes a report issued last year by Hindenburg Research that labeled Carvana an “accounting grift for the ages.” The car dealer’s stock plunged 15% on the news to close at $410.04 per share, erasing its year-to-date gains and putting the stock down 4% for 2026.
While Carvana called the allegations inaccurate and misleading in statements made to media outlets, it has not provided a detailed rebuttal. Is this a buy-the-dip opportunity for investors, or should they steer clear for fear of more “cockroaches” being discovered as the lights are turned on?
Gotham’s Deep Dive into Hidden Ties
Gotham City Research’s report claims Carvana’s 2023-2024 earnings are overstated due to opaque dealings with related entities like DriveTime Automotive, Bridgecrest Acceptance, and GoFi. Gotham obtained financial reports from these parties through Freedom of Information Act requests, though their accuracy has not been independently verified.
The report highlights DriveTime’s role, stating it generated over $1 billion in negative operating and free cash flow for 2023-2024 but raised equivalent debt to offset this. DriveTime’s leverage reportedly stands at 20x to 40x adjusted EBITDA, far exceeding historical norms, with interest coverage below 1x.
Bridgecrest — described in Carvana filings as a third-party servicer with low fees of 0.117% annually — is accused of originating loans for Carvana-sold vehicles without being identified as a related party. Gotham identified dozens of such loans via public records, suggesting Carvana sells them at premiums to book gains while Bridgecrest handles servicing cheaply.
GoFi shows circular flows with DriveTime, and all share auditor Grant Thornton, raising conflict concerns. Gotham predicts filing delays, restatements, and potential auditor resignation if risks materialize. The short seller emphasized that DriveTime’s subsidies may fuel over 73% of Carvana’s adjusted EBITDA, portraying the structure as unsustainable and reliant on hidden leverage.
Additionally, the report notes DriveTime marked down its loan portfolio by $900 million, contrasting with Carvana’s $755 million in loan sale gains, implying inflated valuations from insider transactions.
Echoes of Hindenburg’s Warnings
The Gotham report builds on Hindenburg Research’s critique from January 2025, which disclosed a short position and accused Carvana of a “father-son accounting grift.” Hindenburg uncovered $800 million in loan sales to a suspected undisclosed related party, alongside accounting tweaks and lax underwriting to boost short-term income. It focused on Ernest Garcia II’s control and insider stock sales amid solvency risks.
About 26% of Carvana’s gross profit came from subprime loan sales, with extensions doubling while peers declined. Carvana denied the claims, affirming it is focused on execution. Shares dipped initially but recovered, closing 2025 up 108%.
Mounting Pressure from Subprime Delinquencies
Because Carvana’s model relies heavily on subprime borrowers for much of its financing, it faces heightened risk as delinquency rates climb. Fitch Ratings data shows 60-plus day subprime auto loan delinquencies reached 6.74% in December, the highest since the early 1990s. This also marks a 59 basis point rise year-over-year, driven by high payments and economic strains. October’s delinquency rates hit 6.65%, a record in Fitch’s index.
Subprime borrowers, often with credit scores below 640, struggle with elevated vehicle prices and interest rates averaging 16% to 21% for deep subprime. Fitch notes there are no recession signals yet, but repossessions are up to 1.2% monthly.
Carvana’s exposure could amplify losses if the trends worsen, especially as lower-income consumers face broader affordability challenges. Factors including ongoing inflation and job market shifts exacerbate payment difficulties, potentially leading to higher charge-offs in Carvana’s portfolio.
Key Takeaway
Carvana weathered Hindenburg’s 2025 attack with a stock rebound, but Gotham’s claims appear more pointed, citing FOIA-sourced records on related-party debts and intermingling of finances. Naturally, trial lawyers also crawled out of the woodwork on the publication of the research report, saying they have launched investigations into potential securities fraud, alleging overstated earnings and misleading statements.
Although such victim shopping is not unexpected in these circumstances, this is still not a buy-the-dip moment for Carvana stock. These latest allegations seem to have greater veracity because of the financial reports backing them, and the used car dealer needs to first forcefully refute the charges before investors should consider touching its stock.
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