EHang (NASDAQ:EH) stock is taking a plunge after Hindenburg Research published a short report on the Chinese electric vertical take-off and landing (eVTOL) company.
In the report, Hindenburg first questions EHang’s valuation, noting that it trades at at around a 50x tangible book value multiple. In comparison, competitors Joby Aviation (NYSE:JOBY) and Archer Aviation (NYSE:ACHR) trade at 4.1x and 5.0x, respectively. EHang has also invested $97.4 million in cumulative research and development, while Joby has invested $761.9 million and Archer has invested $381.1 million. While aircraft manufacturing is extremely capital intensive, EHang last reported a cash balance of just $44.9 million.
“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,” said Hindenburg.
EH Stock: Hindenburg Issues Short Report
Hindenburg also points out the restrictions on the type certificate that was recently granted to EHang’s EH216-S aircraft. These restrictions do not allow the aircraft to fly in heavily populated areas and it must be in the line of sight of its remote crew when in the air. EHang has stated that these restrictions will gradually be removed, but Hindenburg notes that the aircraft must undergo a “billion-dollar redesign and an entirely different class of certification to avoid the limitations” according to China-based eVTOL experts.
Next, the short seller dives into EHang’s 1,300-plus unit preorder book. The company’s largest preorder is for 1,000 units, or about 74% of EHang’s total order book, from pre-initial public offering (IPO) investor United Therapeutics (NASDAQ:UTHR) in 2016. However, United Therapeutics’ CEO in 2020 noted that she was seeking an aircraft with a range of 250 nautical miles, while EHang’s EH216 only has a range of about 19 miles. Additionally, United liquidated its entire $109 million stake in EH stock back in 2021. When Hindenburg inquired with a United public relations representative, they responded:
“We have no comment. We’re just not going to comment on this.”
Additionally, a former EHang employee characterized United’s preorder as “dead,” despite EHang continually documenting the preorder as active.
In light of these accusations, Hindenburg has disclosed a short position in EH stock.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
