Shares drone taxi maker EHang crash after Wolfpack report

Chinese drone taxi manufacturer EHang‘s stock plummeted yesterday after US investment analyst Wolfpack Research released a damning report on the company. In a few hours, EHang lost more than 60% of its share price. According to the analyst, EHang has painted a far too rosy picture of the company and its technology. EHang has denied the charges.

Shares drone taxi maker EHang crash after Wolfpack report

Short selling

Wolfpack Research is a so-called short seller. This means that the company speculates on declines in the value of companies by going short on the stock. The company also publishes reports containing investment advice and business analysis. By publishing a critical report, Wolfpack Research hopes to negatively influence the stock market price of the relevant company in order to subsequently make money from it.

On Tuesday evening, Wolfpack Research published a new business analysis, this time targeting EHang. EHang is a Chinese manufacturer of Advanced Aerial Vehicles (AAVs), its flagship being the two-seater EH216. EHang has been listed on the American NASDAQ for a few years. The share price has risen by hundreds of percent in recent months, partly as a result of the announcement of numerous demonstrations and collaborations, including in various European projects.

Critical report

In the report, however, Wolfpack Research claims that EHang has cheated on several fronts. For example, the company would have presented the business results much better than is actually the case, lied about the state of affairs when it comes to certifications and has much less production capacity than communicated to the outside world.

The video below was made by Wolfpack Research. With this, the analyst would like to show that the production facilities of EHang are still very small.

As a result of the report, EHang’s share price plunged more than 60% within hours, from over $120 a share to $46.30 at the close of NASDAQ. It was only after five hours – possibly as a result of the Chinese New Year, which closed almost all businesses in China – EHang came out on its website with an official response to the report, in which the company states that the analysis “is full of errors, baseless statements and misinterpretations.” In terms of content, EHang has not yet addressed the accusations.

Reactions and consequences

Shareholders reacted in disbelief to the price drop. In fact, a law firm specializing in stock market manipulation has already started an investigation into possible fraudulent behavior by EHang. Other investors are critical of the Wolfpack Research report and state that EHang is indeed a reliable player, has conducted numerous successful test flights, and has been able to enter into many international partnerships.

While it is still too early to draw any definitive conclusions, it appears that EHang has taken a major hit when it comes to investor confidence. Investors will now look extra critically at the Chinese firm. It is also questionable whether EHang can remain connected as a partner to various European projects in the field of Urban Air Mobility (UAM), as announced in recent weeks, if it appears that the company has misled investors.

Tricky time

Regardless, EHang will have a rough time, says Brian Garrett-Glaser of EVTOL magazine. “With no evidence of unique intellectual property in key elements of its aircraft and R&D expenditure that is not competitive with the rest of the industry, it is hard to imagine how EHang can justify its valuation in the years to come – even if it appears that their current aircraft can be certified for regular passenger flights.”

In any case, Garrett-Glaser thinks that the chaff still needs to be separated from the wheat when it comes to urban air mobility: “Even without Wolfpack’s allegations, EHang’s valuation simply wasn’t right – but apparently that doesn’t really matter in a market. which is as unproven as urban air mobility. Unfortunately, investors who have little feeling for aviation find it difficult to distinguish between market-leading technology and market-leading public relations.”

Update: Meanwhile, the CEO of EHang has responded to the WolfPack Research report through an interview. Again, the accusations of the short seller are contradicted. The share price of EHang immediately rose by a few dozen percent after the opening of the NASDAQ and stands at $ 73 at the time of writing.

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This article first appeared on dronewatch.nul and is written by Wiebe de Jager who is also a DroneXL contributor.