**EHang Holdings Ltd. (EH) is getting set to refuel as it makes what appears to be a final taxiing move before taking flight. In a stock exchange filing last Friday, the maker of autonomous aerial vehicles unveiled a plan to raise up to $100 million from a public offering of its American depository shares (ADS). That’s a substantial amount for the company, more than three times its cash holdings as of the end of last year. It’s also more than double the amount of funds it raised in its IPO in 2019, and nearly a tenth of its current market cap.
EHang has been busy clearing regulatory hurdles to sell its unmanned flying vehicles for commercial operations, which means that it remains reliant on external capital to fund its money-losing operations. But it’s inching closer to bringing its products to market after receiving a critical “type certificate” for its main product from China’s aviation regulator last October.
As it taxis towards the finish line, the company appears to think it’s a good time to tap investors to raise funds that it will need to mass produce its products in the not-too-distant future. After all, despite its recent advances, it may still be a while before EHang becomes profitable enough to self-fund its own operations. So, the company appears to be striking while the iron is hot, taking advantage of positive investor sentiment to raise new funds.
EHang is no stranger to capital raising, which it has used to fund its money-losing operations since its founding in 2014. The new public equity offering comes less than a year after the company sold $23 million of shares in a private placement to a group led by South Korean music producer Lee Soo Man, who founded big-time K-pop label SM Entertainment (041510.KS).
While these fund-raising efforts are underway, EHang continues to tick more boxes required to commercialize its flying vehicles. Earlier this month, the company received a “production certificate” for its EH216-S passenger aircraft from the Civil Aviation Administration of China, building on the type certificate it obtained about six months earlier. The production certificate allows EHang to mass-produce EH216-S. That moves it one step closer to start delivering aircraft to the companies that have placed orders – many that were contingent on the company getting necessary regulatory approvals.
EHang’s revenue jumped 165% to 117 million yuan ($16.5 million) last year from 2022 as it delivered more units in the EH216 series. In 2023, it shipped 52 vehicles, bringing the total tally to 237 as of the end of the year, the bulk of which are the EH216-S. The aircraft EHang has delivered so far are mostly used for trial operations in tourist sites across China. But the company is slowly building up its overseas order book as well. After winning its first overseas contracts in South Korea and Indonesia in 2021, it expanded its international customer base to 10 countries by the end of last year, including Japan, Brazil, Columbia, Saudi Arab and Qatar. Still, the total number of units sold outside China remains tiny.
Despite the surge in EHang’s revenue, its net loss narrowed by only a modest 8% last year, as its operating expenses continued to vastly exceed its small revenue base. But its actual loss of cash from operations nearly halved to about $12 million because a large chunk of its net loss last year stemmed from non-cash expenses, such as share-based compensation.
The company’s finances are likely to improve further once the commercialization of its aircraft gets underway and revenue growth starts to accelerate. EHang’s revenue is projected to more than triple this year and more than double from that next year, according to a consensus of analysts put together by Seeking Alpha. Most significantly, analysts expect the company to start turning a profit in 2025.
Not everyone is so bullish on EHang, however. Last November, the company became ensnared in a short-selling attack by Hindenburg Research. The U.S. firm, which specializes in forensic research on companies it suspects of misleading investors, is perhaps best known for its 2020 campaign against Nikola Corp., an American electric truck maker. At that time, Hindenburg accused Nikola of being deceptive about its technological capabilities, eventually leading to regulatory investigations and the resignation of the company’s founder.
As for EHang, Hindenburg claimed that the company’s much-touted type certificate for the EH216-S included numerous flight restrictions that it didn’t fully disclose to investors. It argued that those limitations invalidate many of the vehicle’s potential commercial use cases, including flying in densely populated areas and shared airspace, which would require a billion-dollar redesign and a completely different type of certificate to address.
Hindenburg went so far to say that more than 90% of EHang’s pre-orders were based on “dead” or abandoned deals, or with failed partnerships and newly formed entities with no discernible operations.
EHang issued a relatively short statement saying the report included “untrue statements and misinterpretation of information” and showed Hindenburg’s “cursory and incomplete understanding” of its operations. Investors seemed to take the report in stride, with Ehang shares falling for a couple days before rebounding.
EHang shares are currently up more than a third from their IPO price, no easy feat for a U.S.-listed Chinese company in the current climate where most stocks have tanked over the last two years. The company currently commands a sky-high price-to-sale (P/S) ratio of 63 due to its limited revenue base, though that figure would come down sharply if it achieves the kind of revenue growth that analysts are forecasting over the next two years.
Given that EHang is seemingly quite close to commercialization, it probably will secure the new funding it needs now without much difficulty. That may give the company enough fuel to sustain its operations until its self-flying aircraft hit the skies en masse.
