The EHang Report Easily Explained

EHang (EH) is an urban air mobility company, which is just a fancy way of saying drone, from China.
Ehang’s stock crashed a whopping 62%, from $122 to $46, after a report was released.
This report was released yesterday from Wolfpack Research, and I would like to go over some of the most important points from the report.

Disclaimer: This is not investment advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk.

EHang's Empty Facilities
The report starts with a brief summary of why EHang is a complete scam.
Analysts from Wolfpack research visited EHang’s corporate headquarters / main manufacturing facility, and found out that it was practically empty.
They roamed around the facility for 20 minutes, and couldn’t find anyone.
The facility lacked advanced manufacturing equipment, a basic assembly line, and the hardest worker in the company was apparently this one security guard who was sitting down on the ground behind the bushes.

This is surprising given that EHang supposedly claims to be full of world class proprietary technologies, sells drones that cost close to $300,000, and manufactures a product that could put the lives of its customers at risk if it were to be stolen, improperly operated, or tampered with.

Wolfpack research has a good track record of having exposed other China-based companies, and the fact that the facility was completely empty just seemed awfully familiar.
While the facility being empty doesn’t necessarily mean that EHang is a complete scam, at the least, it’s a good indication that the business is not what it claimed to be in the SEC filings.

Pre-Manufactured Parts
Besides employees, they also couldn’t find any industrial grade manufacturing machinery, assembly line, raw material inventory, or special work zones, which are actually very common in automobile or drone factories.

Instead, it seemed highly likely that EHang was simply assembling pre-manufactured parts, as they found hundreds of boxes for parts that are used in EH216.
They weren’t able to find any raw material or production equipment, and logically thinking, based on how small EHang’s actual input in creating the product is, it’s legally disputable as to whether the company can claim that their products are “manufactured by EHang”.

As a comparison, they compared XAG’s facility to that of EHang’s, and both companies are located in Guangzhou. XAG manufactures unmanned drones and they look like a legitimate factory.
So EHang, which manufactured drones that carry passengers, should look more robust than this.
Even when comparing EHang to Robinson, a small helicopter company that is a potential competitor for EHang, Ehang’s facility looks nothing like theirs.

The Yunfu Factory
The analysts then debunk a lot of claims that EHang made about their supposed “manufacturing facility” in Yunfu.
The first claim was that EHang had built a new production facility in Yunfu, but this turned out to be deceiving.
While there was a large facility, EHang had simply rented the facility, and was in the process of retrofitting it.

The second claim that EHang made, was that they had started manufacturing at the Yunfu factory in December 2020, but this claim was also false.
This is what the reception for the factory looked like, and analysts were told by the Yunfu Park Committee that construction wouldn’t be complete until around February 2021.
Most of the areas in the factory were either under construction or completely empty.
And obviously, there weren’t any manufacturing equipment or assembly lines.

The management committee also said that they were “uncertain whether or not Yunfu EHang’s funding would be available”, which raises a lot of questions about EHang’s supposed government support for this facility.

Dr. Moore and T Motors
Wolfpack spoke to Dr. Moore, who is the director of engineering for aviation at Uber, and discovered that Ehang uses hobby grade motors, which are not meant to propel aircrafts that carry passengers.

Dr. Moore said that he “closely inspected and analyzed their configuration, and I see no significant IP anywhere."
"They were using T motors. Those are hobby grade motors. Those are not aerospace products.”

So then Wolfpack immediately went to research T motors, a Chinese hobby grade motor.
In the custom section, where they offer original design manufacture services, or ODM services, they found something very familiar.
In case you don’t know what ODM is, basically, T motor lets EHang choose the color of the motor casing, and lets EHang put their logo on parts that are designed and manufactured by T motors.
Based on this, Wolfpack Research concluded that EHang was conducting light-assembly of parts they purchased from ODMs, whose motors shouldn’t be used to carry passengers.

Kunxiang
They also claimed that EHang created a paper company called Kunxiang, in order to pump up the stock’s price.
2 out of 3 addresses for the company Kunxiang were false, with one being an address for a hotel, and another being for an office located on the 13th floor, when the building itself had only 11 floors.

Sham contracts with Kunxiang had been fabricated to pump up revenue, and make it seem like the company was growing at a rapid pace.
Wolfpack Research believes that a whopping total of $33.4m from EHang’s entire revenue appears to be from sham contracts.
Not to mention the fact that EHang has only collected cash for 20% of its reported revenue since its IPO, which amounts to $3.6m.
What’s really suspicious about this is that they don’t charge interest on late payments, nor do they ask their clients for collateral.

Deceiving Press Releases
Most importantly, EHang has made extremely misleading press releases.
In their Chinese press releases, they talk about misleading statements regarding regulations and licenses granted by the US and Canada.
Conversely, in the English press release, they talk about regulatory approvals in China, so that both Chinese and Western investors have no idea as to what is actually happening.
This is extremely deceptive.

They have also omitted key words like ‘short term’, ‘one time’, ‘trial’, or ‘test’, when describing their flight approval, and add words like ‘passenger-grade’ and ‘commercial’, when describing their license.

Ehang's Rebuttal
To be fair, EHang has released a statement with the title: Ehang responds to deceptive Wolfpack Research Report.
They say that they have forward-looking projections, statements, and predictions that are reasonable, and it’s not that they’re outright scamming, but that there are certain risks and uncertainties beyond the management’s control.

To me personally, their report is not convincing at all.

Conclusion
The field of urban air mobility actually has potential.
But with companies like EHang marrying social perception, innovation will be hindered.
We’ve seen Nikola (NKLA) do this with hydrogen cars, and it seems like EHang is doing something similar, just to a worse degree.
An SEC-led investigation is imminent.

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