On The Radar
EHang is taking legal action against Wolfpack Research, which last week published a highly contentious report that dismissed the eVTOL aircraft developer as “a stock promotion destined to crash and burn.” The self-proclaimed activities research group, which largely takes short positions on equities, leveled multiple accusations against EHang, alleging that it has misrepresented several aspects of its business dealings.
As of early on February 24, FutureFlight had found no confirmation of a lawsuit filed by EHang. A spokesman for Wolfpack said that the company stands by the conclusions of its research.
However, EHang is itself a defendant in a class-action lawsuit initiated by Boston law firm Block & Leviton on behalf of a client called Eyobe Amberber, which is an investor in Nasdaq-listed EHang. Court documents filed in the U.S. District Court for the Southern District of New York allege that EHang Holding Ltd, along with company officers Huazhi Hu, Richard Jian Liu, and Edward Huaxing Xu, made “materially false and misleading statements” in violation of U.S federal securities laws.
The lawsuit, which was directly prompted by the Wolfpack Research report, details a succession of statements and press releases issued by EHang since Dec. 12, 2019. These are described in pages 22-54 of the suit, which calls for a jury trial in pursuit of unspecified compensatory and punitive damages.
Meanwhile, in its February 22 statement, EHang said that it is suing New York-based Wolfpack “for its malicious act and false accusations in order to protect the interests of the company and its shareholders. In Nasdaq market trading on February 23 EHang’s stock closed at $50.18, a decline of just under 60 percent from its $124.09 closing price on February 12.
The opening price for EHang's initial public offering (IPO) on December 12, 2019, was $12.50. Throughout 2020 the price was almost completely flat, never exceeding $15, until December 24 when it spiked up to $26.16. That's when it began a steep ascent to the $124.09 peak, four days before Wolfpack dropped its bombshell report.
In the latest salvo of a sustained public and investors relations campaign that began on February 17, EHang also released further details of transactions conducted with Shanghai Kunxiang Intelligent Technology. Among its allegations against EHang, the Wolfpack report said that the company had fabricated revenues “based on sham sales contracts.”
The latest disclosure shows details of two contracts between EHang and Kunxiang, covering 22 aircraft purchased in 2019 (including 21 two-seat EH216s and 1 single-seat EH116). The contracts show the unit price paid for each aircraft to have been RMB1.5 million ($232,000). By way of comparison, the approximate unit price of one of Archer Aviation’s new four-passenger eVTOL aircraft is $7.5 million, based on its recent agreement for up to 200 aircraft with United Airlines.
In 2019, almost a quarter of EHang’s total revenues came from Kunxiang, which has so far paid around 71 percent of the amounts due for the aircraft (even though the contracts called for payment in full on delivery). The manufacturer added that for the financial year that ended on Dec. 31, 2020, Kunxiang was no longer its largest customer. It has not disclosed the names of other companies that it says have taken delivery of aircraft or how much they have paid for these aircraft.
In a press statement issued on February 17, EHang founder Huazhi Hu said that, "pricing and other terms offered by EHang to Kunixiang are not substantially different to other major customers in China. Interviewed by FutureFlight on the day EHang's stocked opened for trading in New York, company co-founder and chief marketing officer Derrick Xiong said that the "suggested price" for the EH216 was $300,000, i.e. around 23 percent more than Kunxiang reportedly paid.
Xiong said that, at that point, EHang had more than 1,000 orders for its vehicles from "global partners." Among several unnamed partners that he referenced was a North American company involved in human organ transportation. He may have been referring to U.S. biotechnology group United Therapeutics, since in December 2020 founder Martine Rothblatt told Aero Montreal's International Aerospace Innovation Forum that her company had provisionally committed to purchasing a large number of aircraft. However, that order appears to be conditional on EHang developing a version of its aircraft with a much longer-range than the current 22 mile limit for the EH216.
What is also revealed in today’s EHang statement is that Kunxiang is the company that has been operating the EH216 aircraft in a series of public flight demonstrations across China. Three of the aircraft delivered to Kunxiang went to undisclosed international locations, with the rest being spread across Chinese provinces including Jiangsu, Liaoning, Xingjiang, Jilin, Hunan, Zhejiang, Guangdong, and Hebei.
The company, which EHang said is involved in aerial sightseeing, has conducted “trial flights” in 17 cities across China, many of which have been reported in the media. What remains unclear is whether Kunxiang received payments for carrying passengers or goods on these flights, which were conducted in aircraft that have yet to complete type certification. There have also been public demonstrations of EHang aircraft outside China, including in South Korea, and it is not clear whether these demos were conducted by the manufacturer or its customers.
EHang previously reported that it had delivered 112 of its eVTOL aircraft as of the end of the third quarter of 2020. It has not disclosed the identities of other customers, which it said have included "partners" in countries such as Norway, where it expects the EH216 to be used in roles such as support for offshore oil and gas facilities.
In December 2020, EHang announced plans to launch “autonomous urban air mobility” services in partnership with a company called Greenland Hong Kong. This was followed in January 2021 by what appeared to be a similar deal with three companies: Zhuhai Da Heng Qin Pan-Tourism Development, Zhuhai Huafa Sports Operations Management Co, and Flying World (Technology) Co. Another previously named partner is express delivery group DHL-Sinotrans. It is not clear whether any of these partners are purchasing aircraft.
EHang is expected to report year-end financial results for 2020 in late March.
[This article was updated on February 24 to take account of changes in EHang's share price and to add further information about prices for its aircraft.]