Shares of China-based EHang are down by about 16% in the pre-market session after short seller Hindenburg Research published on the name, claiming "fake sales" and a "hollow order book".
The new report is called "EHang: Hollow Order Book And Fake Sales Make This China-Based eVTOL Company Last In Line For Takeoff".
The report points out the company's "shoestring" budget relative to its peers and that one of its capital raises was led by a "South Korean music producer who was previously put on an INTERPOL wanted list and sentenced to 2 years in prison for embezzling from a Korean company he founded".
On top of that, echoing the story Hindenburg once published about Lordstown Motors (which is now bankrupt), the short seller took aim at the company's pre-order book, calling it "hollow".
"We found that 92+% of EHang’s claimed 1,300+ unit preorder book is based on “dead” or “abandoned” deals, failed partnerships, and newly-formed customer entities with no discernible operations," the short seller wrote.
The report continues:
"EHang’s largest deal is a 1,000-unit preorder from one of its pre-IPO investors, a biotech company called United Therapeutics, which represents ~74% of EHang’s total preorders. The deal was initially signed in 2016. In 2020, the CEO of United Therapeutics said she was looking for a much longer-range aircraft than what EHang offered, saying, “250 nautical miles… is the sweet spot in terms of range,” while EHang’s EH216 offers a range of just 19 miles (30km).
United Therapeutics quietly sold its entire $109 million stake in EHang by February 2021. In November 2021, in its last public comments on Ehang, the VP of Drone Delivery for United Therapeutics said, “I don’t think anyone could say right now that they [EHang] have a certifiable configuration in terms of aircraft design.” A former EHang employee said the deal was “dead”. We repeatedly inquired with United Therapeutics and rather than confirm the partnership, we were told by its PR rep: “We have no comment. We’re just not going to comment on this.” EHang continues to market the deal as active in its SEC filings and investor presentations."
"EHang’s second largest commitment is a 100-unit preorder, worth ~$30 million, from Prestige Aviation, an Indonesian entity that was formed with $34,000 in registered capital 1 day prior to its announced partnership with EHang," the short seller writes. "Outside of promotional events with EHang, we found no website and zero evidence of any aviation operations for Prestige Aviation except for a photoshoot where it appears to have photoshopped its logo onto a rented jet."
Interestingly, the report also seems to also validate past critiques about fake sales made by short seller Wolfpack Research in 2021:
"In 2021, a research firm alleged that one of EHang’s largest customers, Kunxiang, was secretly a pre-IPO investor that signed “sham sales contracts” so that EHang could report revenue growth as it approached its IPO. EHang’s CEO denied the allegations, calling its dealings “arm-length transactions.”
Corporate records reveal that Kunxiang is in fact controlled by a sanctioned Chinese financier whose venture capital firm invested in EHang pre-IPO through an offshore shell company in 2017. An executive from the venture capital firm admitted in a 2018 interview to investing in EHang. Further confirming this, the same executive was photographed celebrating with EHang CEO Hu Huazhi at the company’s Nasdaq IPO bell-ringing ceremony."
Hindenburg also takes exception with the company's valuation, writing: "EHang has generated net losses since inception and currently trades at ~50.3x its tangible book value, a significant premium to competitors Joby Aviation (4.1x) and Archer Aviation (5.0x). Despite its premium valuation, EHang’s flagship aircraft is outmatched by competitors on key performance metrics."
The report concludes:
"Overall, EHang seems to have a major credibility issue—whether it be by fluffing up its preorder book (which looks to almost entirely be vapor) or by brazenly misleading about early sales that bear all the hallmarks of fake revenue. Trust is crucial in the aviation industry, both for investors and potential customers who are literally putting their lives at risk. We think the company is a fatal accident waiting to happen, both for investors and for passengers."
And now, we wait for the company's response...
