EHang Holdings Ltd. (Nasdaq: EH) posted another rebuttal to the short seller report by Wolfpack Research Friday including additional details, but a class action lawsuit against the Chinese company has already begun.
The maker of autonomous aerial vehicles based in Guangzhou issued a generic denial statement on Wednesday, saying Wolfpack’s report contained errors, unsubstantiated statements, and misinterpretation. Today, EHang released a more elaborate denial.
EHang stating that (1) Kunxiang was not a shareholder of EHang prior to its IPO; (2) EHang has a contract with Kunxiang to sell three of its EH216s for 1.5 million yuan each; (3) pricing of EHang’s products to Kunxiang are “based on arm-length transactions” and depend on “(i) the number of passenger-grade AAVs sold in a period, and (ii) the amount of revenues generated by air mobility solutions, which have mostly been derived from the sales of passenger-grade AAVs;” (4) Wolfpack’s statements about Kunxiang’s offices is a lie; and (5) Kunxiang is no longer the largest customer of EHang as of 2020.
Meanwhile, Bragar Eagel & Squire, P.C., jumped in on the action, announcing Thursday it has filed a lawsuit in New York on behalf on EHang investors on Feb. 17. This was after EH stock dropped from $124.09 to $46.30 per share following the allegations of fraud.
Bragar Eagel said its complaint alleges that defendants made materially false and misleading statements regarding the company’s business.
Specifically, it claims that: “(i) the Company’s purported regulatory approvals in Europe and North American for its EH216 were for use as a drone, and not for carrying passengers; (ii) its relationship with its purported primary customer is a sham; (iii) EHang has only collected on a fraction of its reported sales since its ADS began trading on NASDAQ in December 2019; (iv) the Company’s manufacturing facilities were practically empty and lacked evidence of advanced manufacturing equipment or employees; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.”
Earlier this week, Wolfpack Research issued a report where the short seller 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 and is interested only in raising EH stock value rather than its products.
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.”
On Friday, shares in EHang shifted 3% lower, trading at $59.30 apiece. This was after the stock enjoyed a remarkable ride from $8 per share in 2020 to its peak of $129.80 per share this year.
Perhaps, investors just started to see EHang as the new Luckin Coffee (OTC: LKNCY).