On The Radar
EHang has strongly refuted claims by Wolfpack Research that the eVTOL aircraft developer is “a stock promotion destined to crash and burn.” In a statement issued late on February 16 in response to a report issued earlier in the day by the self-proclaimed “activist research firm” that largely focused on taking short positions on equities, the Chinese company said that the accusations made by Wolfpack were based on “numerous errors, unsubstantiated statements, and misinterpretation of information.”
In trading on New York’s Nasdaq exchange, EHang’s stock closed the day almost 63 percent down at $46.31. This ended a surge that had seen the stock peak at $124.09 as recently as February 12, more than halving the company’s valuation from above $6 billion to just over $2.5 billion.
Wolfpack’s inflammatory report accuses EHang of fabricating revenues “based on sham sales contracts” and of boosting its perceived value “with a collection of lies about its products, manufacturing, revenues, partnerships, and potential regulatory approval” for the EH 216 Autonomous Aerial Vehicle. Much of the report focuses on a company called Shanghai Kunxiang Intelligent Technology that Wolfpack says is a major customer for the aircraft sales that EHang claims to have made. Based on investigations conducted in China, Wolfpack characterizes Kunxiang as a “sham customer," alleging that it bought shares in EHang before its December 2019 initial public offering and has connived to boost the value of this equity by ordering aircraft.
Announcing third-quarter results on Dec. 3, 2020, EHang reported a doubling of revenues to RMB71 million ($10.5 million), largely based on income from its light drones and services associated with these, and reduced its operating loss to around $300,000. It said that during the quarter it had sold a further 23 examples of the EH216 vehicle, bringing total reported sales since 2018 to 112 units.
At the end of 2019, EHang claimed to have already delivered 60 examples of the two-seat EH126 model and one of the single-seat EH116, even though the aircraft had not completed type certification (and still has yet to do so). Pressed to explain how uncertificated aircraft could be delivered to customers, the company said that the early examples had been sent to “partners” in multiple countries. It would appear that these partners are intended to act as sales agents for the aircraft, which EHang has indicated will complete type certification in China by the end of 2021.
When pressed by FutureFlight and other news organizations for details on the status of type certification work, EHang has generally responded with upbeat, but vague, reports about how closely it is working with the Civil Aviation Administration of China (CAAC). The agency appears to have granted EHang significant leeway in being able to conduct public flight trials during the certification process, including what are claimed to be flights with passengers who are not employees. The company has also reported commercial partnerships involving services such as sightseeing and logistics.
The Wolfpack report also questions the validity of EHang’s announced approvals for flight demonstrations in countries including Norway, Austria, Canada, and the U.S. It pointed to what it said are inconsistencies between press releases issued in English and Mandarin.
The report quoted statements from Mark Moore, former director of aviation engineering with Uber Elevate, in which he expressed concern over the caliber of components and systems used in the EH216 aircraft, including motors, which were described as “hobby grade.” He also reportedly cast doubt on the validity of EHang’s autonomous flight technology, questioning how advanced this could be based on the low estimates of how much the company has invested in research and development.
Finally, the Wolfpack report points to Chinese court records that it says show that China-based EHang Guanzhou retains control of most of the group’s assets, suggesting that these could be frozen by court order and liquidated to repay creditors. It argued that this would leave foreign investors little legal recourse. When EHang filed papers with the U.S. Securities and Exchange Commission for its IPO in December 2019, it did so under the name of Cayman Islands-registered EHang Holdings Limited.
In a further development on Tuesday, U.S. securities litigation law firm Block & Leviton announced that it is investigating EHang Holdings Limited “for potential violations of federal securities laws.” It urged investors to make contact with the firm.
In May 2020, the U.S. Senate, apparently with support from the Trump Administration, passed a bill that would have banned Chinese companies from listing shares on U.S. stock exchanges unless they met specified SEC requirements for transparency. The measure was not implemented, although President Trump followed up with further threats in September and did subsequently implement executive orders imposing restrictions on Chinese companies producing equipment that could have military applications, including drones.
EHang’s statement on February 16 indicated that it will push back against any fallout from the Wolfpack report. “The company will consider any necessary and appropriate course of action to protect the interest of the company and all its shareholders,” it concluded. “EHang is committed to maintaining the highest standards of corporate governance, as well as transparent and timely disclosure of compliance with the applicable rules and regulations of the U.S. Securities and Exchange Commission and the Nasdaq stock market.”
On February 17, EHang issued a further rebuttal of Wolfpack's accusations in the form of an interview with Huazhi Hu.