Summary: EHang (NASDAQ:EH) EHang is a $903 million market cap, China-based, Nasdaq-listed electric vertical take-off and landing (“eVTOL”) aircraft company. The company’s share price has surged more than 267% over the last year due to market excitement over eVTOL companies, a recently granted aircraft design certification from the Chinese government, and a 1,300+ unit pre-order book, suggesting imminent largescale revenue. 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. Aircraft manufacturing is a matter of life and death. Yet EHang has operated on a shoestring budget relative to peers, investing just $97.4 million in cumulative R&D, while competitors Joby and Archer Aviation have invested $761.9 million and $381.1 million, respectively. EHang’s competitors have hundreds of millions in cash, while EHang has only $44.9 million left, representing limited runway in the capital-intensive aviation industry. Short on cash, in July 2023 EHang announced a $23 million capital raise 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, according to media reports. EHang’s much-touted, recently granted certification comes with numerous flight restrictions that it has failed to fully disclose to investors. The restrictions invalidate the bulk of its potential commercial use cases, including restrictions against flying in densely populated areas, in shared airspace, and out of sight of a ground crew. EHang claims restrictions will be progressively lifted, but according to China-based eVTOL experts, EHang’s flagship aircraft would need a billion-dollar redesign and an entirely different class of certification to avoid the limitations. 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. 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. 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. In January 2022, EHang received a 50-unit preorder from AirX, valued at an estimated $15 million. AirX is a Japanese startup based out of a WeWork that reportedly raised around $1 million in capital, largely to scale its helicopter sightseeing booking website. AirX’s website indicates it merely intends to resell EHang products to buyers that don’t yet seem to exist, in a country (Japan) where EHang would need to complete a multi-year certification process. In September 2023, EHang announced an up to 100-unit order, representing an estimated $30 million in sales, from Shenzhen Boling Holdings Group, which was in the business of “Radio and Television” production up until 5 days before the Ehang deal announcement, when it added aviation-related terms to its official Chinese business description. Boling has virtually no web presence and has zero registered employees, according to QCC, a Chinese corporate database. Its corporate address leads to a residential apartment building. Beyond pre-orders, in 2019, EHang announced a major partnership with DHL-Sinotrans to develop a “fully automated and intelligent drone logistics solution.” EHang hasn’t provided an update on the project since August 2020. A former EHang employee told us the project was a “dead end,” saying, “…there were some problems in the integration, and they abandoned the project.” 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. To summarize, when faced with allegations of suspicious product purchases by a conflicted party, EHang CEO Hu Huazhi seemingly chose to flagrantly mislead shareholders by claiming that the aircraft purchases were arm’s length. EHang never seemed to collect the suspect revenue and has instead been aggressively impairing its receivables since 2020, writing down $15.2 million in receivables during a period where it only reported $15.3 million in revenue. EHang’s insiders & key stakeholders haven’t reported a single stock purchase since inception. Instead they have reported selling more than 28 million shares, including share sales in September 2022 at prices as low as $4.21-$6.17, 59%-72% below current levels. 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. Initial Disclosure: After extensive research, we have taken a short position in shares of EHang Holdings Limited (NASDAQ:EH). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report. https://hindenburgresearch.com/ehang/