Updates shares, rewrites paragraphs 1-3

By Johann M Cherian and Nathan Gomes

Feb 19 (Reuters) - Carvana's CVNA.N shares fell about 8% on Thursday as rising expenses to recondition vehicles and depreciation dented the online used-car retailer's fourth-quarter profit.

Persistent inflation and tariff-related price hikes of new cars in the U.S. have forced some buyers to either defer new-vehicle purchases, downsize to lower trims or opt for used vehicles.

While used-car sales have sustained, auto retailers are having to contend with the trickle-down effects of tariffs and inflation, which have driven up reconditioning costs and depreciation.

At least four brokerages, including J.P. Morgan and RBC Capital Markets, cut their price targets on the stock after the results were announced post market hours on Wednesday.

Carvana said costs were squeezed by bigger-than-expected expenses tied to the inspection, repair and detailing of vehicles across several production sites during the quarter. Higher retail depreciation rates added further pressure on a per-unit basis, the company added.

The disappointing results come just months after the retailer, known for its towering vehicle vending machines, capped 2025 by joining Wall Street's benchmark S&P 500 index, having earlier shrugged off allegations from short sellers.

Stephens analyst Jeff Lick called the share drop a potential opportunity for investors, adding that even modest disappointments could trigger sharp reactions in premium-valued stocks such as Carvana.

The stock has long been a favorite among retail investors, fueling several meme stock rallies in recent years that have repeatedly wrong-footed hedge funds holding bearish positions in the company.

On Wednesday, the company rejected fresh allegations from short seller Gotham City Research that it overstated its 2023–2024 earnings by more than $1 billion.

Short positions in Carvana remain elevated but have dropped slightly since the start of the year, with about 14.84 million shares sold short, representing roughly 10.7% of the company's free float as of February 17, according to data analytics firm Ortex.

(Reporting by Johann M Cherian and Nathan Gomes in Bengaluru; Editing by Tasim Zahid and Leroy Leo)

((johann.mcherian@thomsonreuters.com))