Chinese drone maker EHang has hit back at reports by a short-seller that EHang’s business is “an elaborate stock promotion, built on largely fabricated revenues based on sham sales contracts”. EHang is an autonomous passenger drone company founded in 2014. The company made headlines over the years for its promise of self-flying taxis, and went public in New York in 2019.
The 33-page report by Wolfpack Research caused EHang’s shares to fall by 63 percent last week. EHang said on Friday (19 February) that Wolfpack’s report “was based on shoddy research and contains numerous, unsubstantiated statements, and misinterpretation of information. EHang intends to engage legal counsel to pursue legal actions against Wolfpack Research for its malicious act and false allegations”. The shares of EHang recovered to about US$62, still well below its previous high of US$$129.80.
Read the Wolfpack Research Report here.
Wolfpack, in its report, said it believed EHang “is an elaborate stock promotion, built on largely fabricated revenues based on sham sales contracts with a customer who appears to us to be more interested in helping inflate the value of its investment in EHang i.e., pump EHang’s stock price than actually buying its products. EHang has perpetuated its story with a collection of lies about its products, manufacturing, revenues, partnerships, and potential regulatory approval of its purported main business, an ‘autonomous’ aerial vehicle ‘AAV’ ridesharing network.”
Wolfpack went on to say that EHang’ “relationship with its primary purported customer is a sham”, citing government records and credit reports show that show EHang’s major customer is Shanghai Kunxiang Intelligent Technology. “We have gathered extensive evidence including behind-the-scenes photographs, recorded phone calls, and videos of on-site visits to EHang’s various facilities, as well as Kunxiang’s offices which lead us to believe that Kunxiang signed sham sales contracts to benefit its investment stock price in EHang,” Wolfpack said.
The short-seller’s report also said Kunxiang has an exaggerated physical presence and its real operations appear to be a fraction of what is claimed, adding that “to the extent Kunxiang actually does sell vehicles, it did not want to sell EHang’s products to us. When asked, the only employee on-site at Kunxiang, who claimed to be the finance manager, had no hesitation voicing his disapproval of the EH216, and instead offered their own, supposedly much higher quality products for sale”.
Wolfpack added that EHang was pumping up its image by releasing dozens of press releases, “typical of a stock promotion”, in just 14 months as a publicly traded company. Wolfpack said many of those releases were “easily proven untrue” and said vast differences existed between the Chinese versions of the releases and the English versions.
“EHang has announced numerous ‘flight certifications’ and ‘long-term’ approvals for its ‘passenger-grade’ EH216 in the US, Canada and various countries throughout Europe,” Wolfpack said in its report. “According to aviation regulators or experts in aviation regulation in the US, Canada and Europe, EHang has only received permits for recreational test flights of its drones in specified areas, below a specified altitude and at a specified time. In no way are these permits endorsements of EHang’s ‘passenger-grade’ claims, nor are they ‘regulatory breakthroughs’ of any kind. EH also claims in an English PR to have received the ‘World’s First Commercial Pilot Operation Approval of Passenger-Grade AAVs for Air Logistics Uses’ from China’s CAAC. However, the title of the Chinese version of the same PR says nothing about ‘commercial’ or ‘passenger-grade’. What EHang obtained was a special approval letter for trial runs of drones of a specified class. CAAC had granted the same license to at least one other company in Hangzhou, China one year earlier in 2019.”
EHang, for its part, said in its statement from 19 February that “Kunxiang is one of EHang’s customers but it is not a related party of EHang. Kunxiang had never been a shareholder of EHang prior to its IPO. Kunxiang has never purchased any shares from EHang after its IPO. Although any person can purchase EHang’s ADSs from the open market after EHang becomes a public company, EHang has no knowledge that Kunxiang has ever purchased any of EHang’s ADSs, and EHang does not believe Kunxiang holds any meaningful shares whatsoever in the company at any given time.”
EHang also said its pricing and terms provided to “Kunxiang are not substantially different from those offered to other customers in China and all contracts with Kunxiang are based on arm-length transactions”. Addressing the lack of activity at Kunxiang, EHang said “while it is not EHang’s place to comment on its customer’s office buildings or employees, Kunxiang has confirmed to EHang that the allegations made by the short-seller concerning Kunxiang or its employees in this so-called research report are false and misleading. Just for an example, the Wolfpack Research told an outright lie that the office building where Kunxiang is located only has 11 floors by showing an office building index, but a simple site visit will tell you that building indeed has 15 floors”.