Shares in EHang Holdings Ltd. (Nasdaq: EH) recovered 68% on Wednesday after taking a massive hit the day before following the short report by Wolfpack Research. Today, the Chinese autonomous flying vehicle company responded to the allegations with denial and climbed to $77.73 per share.
In a generic statement today, EHang said Wolfpack’s report “contains numerous errors, unsubstantiated statements, and misinterpretation of information." The allegations sent EH shares tumbling as low as $46.20 per share on Tuesday afternoon and were halted by the stock exchange due to high volatility. This was after EHang soared to $129.80 per share the day before.
Wolfpack called EHang an “elaborate stock promotion,” alleging the company fabricates its revenues “based on sham sales contracts with a customer who appears to us to be more interested in helping inflate the value of its investment in EH i.e., pump EH’s stock price than actually buying its products.”
Citing SAIC records, behind-the-scenes photographs, recorded phone calls, and videos of on-site visits to EH’s various facilities, as well as the offices of its main client, Shanghai Kunxiang Intelligent Technology Co. Ltd., Wolfpack alleged that the client is smaller than it looks on paper. This client, Kunxiang, made a $14 million pre-IPO investment in EHang, which Wolfpack sees as an indication of its interest in the increase of EH share price.
Among other things, Wolfpack claims Kunxiang struck a $65 million sales contract with EHang just a week after the former was established. The drone maker then announced various sales deals with its client and later redacted the prices, which Wolfpack sees as a sign that EHang realized the prices were absurdly high and could ruin the company’s credibility. Meanwhile, EHang collected just a fraction of its reported sales, the short-seller said.
The report also debunks EHang’s announcements of receiving flight certifications and approvals of its passenger-grade EH216 in North America and Europe. Wolfpack argues that EHang has only “permits for recreational test flights of its drones in specified areas, below a specified altitude and at a specified time.” Even in China, the short-seller claims, EHang’s vehicles are nowhere close to the “World’s First Commercial Pilot Operation Approval of Passenger-Grade AAVs for Air Logistics Uses” which it claims to hold in its English-version press releases.
Wolfpack states, “In English, EH 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.”
Shares in EHang have performed remarkably well since December 2020. The company debuted in New York in December 2019 in a $40 million IPO and traded near $8 per share for most of last year. In late November, however, the stock began to move upwards, propelled by continuous reports of overseas trial flight permits, express drone delivery solutions, and advancements in the urban air mobility services.
Perhaps, this company and its promises of urban air mobility were just too good to be true. It certainly had me fooled.