Is Ehang a Real Company? Stock Plummets, Class Action Lawsuit Filed After Report Claims Ehang’s Value Was Falsely Inflated

BY Zacc Dukowitz
25 February 2021

A recent report from Wolfpack Research, a research group and short seller of stocks, has slammed passenger drone company Ehang, accusing the company of fraud.

Photo credit: Ehang

The report is scathing, and dramatically entitled “Ehang: A Stock Promotion Destined to Crash and Burn.”

On the same day it was released, Ehang’s shares plummeted, losing 63% of their value. (Shares bounced back up by 35% the next day, to $62/share, but were still half of the previous week’s all-time-high of almost $130/share.)

Ehang is an elaborate stock promotion [scheme], built on largely fabricated revenues based on sham sales contracts.

– Wolfpack Research Ehang Report

Just three days after the report was released, Ehang shareholders have filed a class action lawsuit against the company, alleging that it has lied in order to falsely inflate its value.

What’s in the Wolfpack Research Report?

On its surface you might wonder if Wolfpack Research can be trusted.

They are short sellers, after all, and stand to benefit from Ehang’s stock falling in value. To this point, the first sentence of the group’s report reads: “We are short Ehang.”

But just because a company short sells a stock doesn’t mean it’s lying when it issues claims like this to try and drive the stock’s value down.

It’s actually a common practice for short sellers to look for companies that they believe have lied to inflate their value, do thorough research, and then expose the company so that the company’s value drops. Yes, they profit, but they’re also usually telling the truth.

Image credit: Ehang

So what does the Wolfpack report actually say Ehang did?

Big picture, the report says that Ehang:

  • Doesn’t have nearly the amount of revenue it has reported
  • Doesn’t have the sophisticated autonomous passenger drone technology it claims to have developed
  • Hasn’t actually secured any of the regulatory approvals for commercial autonomous passenger drones that it claims to have secured

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 Research Ehang Report

Here is more information about the claims made in the report:

1. Ehang’s primary customer isn’t actually buying its products, and may not be a real company itself

According to Wolfpack Research, this customer—named Shanghai Kunxiang Intelligent Technology Co., Ltd—has signed “sham sales contracts” with Ehang.

Backing up this claim, the report details how the company was created just nine days before signing a $65 million dollar contract with Ehang; that one of the three addresses it lists on its website is a hotel and another is on the 13th floor of an 11-storey building; and that it is itself a significant investor in Ehang with a motive for wanting to drive up the taxi drone company’s value.

2. Ehang is making up its revenue numbers

Although Ehang may look profitable on paper, Wolfpack Research’s report says that the company has only collected 20% of the money it claims to have made.

To make this concrete, while Ehang reported about $18 million in revenue since it went public in December of 2019, it has in fact only collected about $3.6 million in cash in that time.

3. Lies about regulatory approvals and technology

Over a period of 14 months starting in 2019, Ehang put out 50 press releases, highlighting new regulatory approvals and technological developments at the company.

Apparently a lot of the claims made in these releases were either completely false or grossly overstated. On the regulatory side, Ehang claimed to have made regulatory breakthroughs in the U.S., Canada, Europe, and China, but apparently these claims fall apart under scrutiny.

In English, Ehang makes false claims of commercial approval of its vehicles, the EH216, by Chinese regulators. In its Chinese press releases, EH makes false claims of commercial approvals by regulators in the US, Canada, and Europe.

– Wolfpack Research Ehang Report

Similarly, press releases and information about the company’s advancements with its autonomous passenger drone technology seem to be either inflated or completely made up.
Wolfpack Research had a 32-year verteran NASA engineer, Dr. Mark Moore, inspect Ehang’s EH216 passenger drone, and he found that it used “hobby grade motors” and that “he firmly feel[s] that the current configuration is inherently not safe.”

The rest of the Wolfpack Research report provides detailed evidence backing up these claims, including photographs, recorded phone calls, and videos.

Here’s a video showing a tour Wolfpack Research personnel did of an Ehang factory, allegedly revealing that there was no security, no manufacturing equipment, and almost no one working in the middle of a weekday.

EH GZ Factory Tour Video

Ehang’s Response

The same day that Wolfpack Research released its report, Ehang fired back with a press release stating that it “believes that the report contains numerous errors, unsubstantiated statements, and misinterpretation of information.”

But if you were an Ehang investor, this press release was probably not very reassuring.

The substance of the release was only two sentences (one of which is quoted above almost in its entirety) and even those two sentences are pretty vague.

No specific claims from the Wolfpack report were denied or directly addressed in the release. Also, the release contained a “Safe Harbor Statement” that seemed included only to cover Ehang from the perception of making any kind of claim about its actual value in order to avoid exposing itself to legal action in the US for making false claims—not exactly the response you’d expect from an innocent company.

Does This Mean Taxi Drones Are Just Hot Air?

Not at all.

Although Ehang has grabbed lots of headlines over the years in the drone industry for being the passenger drone company to watch, it is not the only player in the Urban Air Mobility game.

Companies like Lilium, Hyundai, and Airbus are all making serious investments in building both the technology and the infrastructure to support a future populated by flying taxis, and there’s no reason to think that their advances haven’t been real.

Artist’s rendering of a vertiport in Orlando in which Lilium has invested $25 million

Further, the European Union just started testing taxi drones and other UAM as part of a huge project called Air Mobility Urban—Large Experimental Demonstration (“AMU-LED”).

The project is the largest of its kind ever conducted in Europe, featuring technology from 17 different partner companies. Its goal is to complete over 100 hours of test flights, demonstrating the reliability of the technology needed to make passenger drones a reality.

A passenger drone test site being built with funding from  Hyundai

So no, Ehang’s possible downfall does not at all mean that passenger drones are going away.

But now we may finally know why Ehang never launched a taxi drone program in Dubai back in the summer of 2017.

Maybe it didn’t happen because, well, the tech just never existed in the first place.

What do you think—do the claims against Ehang seem true? Share your thoughts in this thread on the UAV Coach community forum.

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