First, it was New-York based Wolfpack Research back in February 2021 who attacked EHang with potentially libellous comments, including describing the stock as “destined to crash and burn.” Its Short position went on to become a success.
Now it is New-York based Hindenburg Research, founded in 2017 by the infamous Wall Street Short seller, Nate Anderson. While he preys on stock market companies under the guise of, “We look for man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims”, the truth of the matter being, he seeks out vulnerable stocks, where Anderson uses “negative research” to attack it, in the hope that investors will become so afraid, SELL, SELL, SELL is the shout, thus helping him make a lot of money on his already procured Short position.
What is a ‘Short?’
A Short trade makes money if a stock falls. As such, if the share price of a company’s stock or bonds fall because of the negative attention garnered by a report, Hindenburg stands to profit. While some criticise short sellers for unfairly pushing down prices with potentially baseless allegations, others insist they are a healthy part of the stock market.
To be heard amid the stock market cacophony and instil fear into investors, the attack needs to be severe and harsh. Anderson begins his EHang assault with the phrase “A Hollow Order Book and Fake Sales make this China-Based eVTOL Company Last in Line for Take-Off.”
Amongst details to support this claim, Anderson states, “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.”
And goes on, “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 company’s CEO 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).”
Adding, “United Therapeutics quietly sold its entire USD109 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.”
These are serious and highly damaging claims, if true, but when you dig into Anderson’s reputation, he is very much on the U.S Department of Justice (DOJ) radar.
For example, livemint.com wrote a blistering attack on Anderson in February. The website begins, “A variety of allegations against the company’s purportedly ‘fraudulent’ activities have now surfaced on social media platforms under the trending hashtag ‘HindenburgExposed’. Indeed, as several Twitter users pointed out, the US company was under investigation by the Department of Justice.”
Videos and posts shared under the ‘Hindenburg exposed’ hashtag also noted that the company was known as a ‘ponzi hunter’, a tag that has also been used by several western media organisations. livemint continues, “As one post put it, they were not specialists who exposed fraudulent activity, they themselves were frauds.”
The website remarks, “The US short seller is among dozens of prominent firms that are being investigated by the DOJ (since 2021) for potentially illegal trading tactics. The probe seeks to establish whether short-sellers used illegal trading tactics to drive down stock prices by sharing damaging research reports ahead of time.
“According to several media reports from last year, federal prosecutors have seized hardware, trading records and private communications as the investigation continues. It is pertinent to note however that the firm has not been accused or charged with any wrongdoing at present.”
Last Week’s Inauguration of EHang’s First European UAM Centre in Spain
In a New York Magazine feature about Anderson from January 2022, there are some poignant comments. The journalist, Andrew Rice, writes, “(His) Short selling started as a secret side hustle. Anderson would post anonymously on the crowdsourced website Seeking Alpha. He called himself Hindenburg Research to sound more authoritative, but it was just him.”
Rice continues, “There is little doubt that short researchers often have undisclosed relationships with interested parties, for example, angry ex-employees looking to take down their old firm.”
Then adds, “Activist-research firms, including Hindenburg, tend to get evasive when it comes to some basic questions, like who supplies them with information and who, if anyone, backs their positions. (It takes serious money to make serious money as a short.) The activists hunt in packs, leading inevitably to allegations of conspiracy and stock manipulation. Adding to the murky atmosphere, some of them, like Anderson, start off by posting anonymously. He describes that as a practical defence: ‘You are just one guy with no assets, just doing research on your own, squaring off against incredibly well-resourced, powerful corporations and investment firms.’
“He declines to describe his stock-trading strategies in detail, except to say he collaborates with a group of roughly ten “investors” — presumably wealthy individuals or financial institutions, although he won’t name names.”
Link to New York Magazine Feature
https://nymag.com/intelligencer/2022/01/nathan-anderson-hindenburg-research-short-selling.html
You must feel sorry for EHang. It is such a marmite stock. The fundamentalist investors loathe it, the visionary ones love it. Not only is this the second time a blatant Short assault has taken place on the company’s share price, but being China-based, apart from its actual investors, does anyone really care in the West? For any negative attack feeds into the narrative, “Are the Chinese trustworthy?”
Therefore, it is encouraging to see the eVTOL company coming out fighting.
Under the guise of an interview with EHang’s Founder and CEO, Huazhi Hu, a press release has been released with the headline ‘How EHang Plans to Shape the Future of Urban Air Mobility’. This is followed by the intro, “Huazhi Hu shares his thoughts on EHang’s strengths and strategies.”
_____________________________________________________________________________________________________________________________________
Huazhi Hu
Can you tell us about EHang’s business plan post-certification and whether you have any comments on the short-seller report published by Hindenburg Research on November 7, 2023?
I bear the responsibility of helping the public and investors better understand the Company’s mission, technical capabilities, and business plans, as well as prevent them from being misled by rumours and false information in the stock market. However, I genuinely believe that the most effective way to defeat rumours is to deliver excellent operating and financial results and let rumours and misinformation crumble on their own. Therefore, I want to share more with you about the Company’s business plan after obtaining TC.
The Company is currently making steady progress in advancing production certification work for EH216‑S. We have witnessed stronger customer demands for our EH216‑S after obtaining TC for various use cases in aerial tourism, urban transportation, aerial logistics, emergency services, etc. We are also in contact with some well-known customers, partners, aiming to attract more orders in the near future.
Simultaneously, the Company has been actively expanding our commercial operations for autonomous eVTOLs to diversify our markets and strengthen our order and revenue base. It’s also worth noting that all the aircraft will be subject to operational restrictions at initial stage for safety, akin to other products that have specific usage environment and conditions. Nevertheless, EHang will gradually lift these operational limitations with the ultimate goal to realize broader commercial operation scenarios across urban areas.
As we sell and deliver more eVTOLs per customers’ requests and steadily expand our commercial operations in the future, our cash flow will improve and we are confident that the Company can generate positive cash flow in the next few quarters.
How does EHang differentiate itself from its global peers?
I founded EHang to make safe, autonomous, and eco-friendly air mobility accessible to everyone. Unlike some global eVTOL peers, EHang adopted a different product strategy and did not set out to make piloted aerial vehicles, such as a lighter version of helicopter with human pilots. At EHang, we have taken a unique approach on aircraft design with our EH216‑S, which is intentionally smaller in size, optimized for short-to-medium-range flights, and well-suited for urban environments. What’s more, our aircraft offer flexible deployment options due to smaller size, eliminating the necessity for extensive ground infrastructure. The EH216‑S is specifically designed to address the requirements of low-altitude short-to-medium-range air transportation needs for the public within urban locations or scenic areas.
Our commitment to simplicity in design is a cornerstone of our safety approach. We believe that a robust multi-rotor design enhances operational safety. Besides, our EH216-S’s safety has been rigorously tested and validated by Type Certificate (“TC”), ensuring that it meets regulatory standards and requirements. Conversely, tilt-rotor designs for larger piloted 5‑seated aircraft, developed by most of our peers, introduce additional complexities and potential certification risks, along with challenges related to substantial ground infrastructure, and seat occupancy.
At EHang, we have chosen to embrace autonomous flying, where our EH216‑S operates alongside pre-determined flight routes enabled by our command-and-control system platform to ensure safety and efficiency, especially when operating at a large scale. This approach significantly reduces the risks of accidents caused by human errors. We firmly believe that autonomous eVTOLs are the key to bringing air mobility to the public. In fact, our first passenger-carrying model unveiled in January 2016, the EHang 184, was already fully autonomous.
In conclusion, our smaller, adaptable aircraft design, emphasis on safety and design simplicity, commitment to autonomous flying and cluster management, position us as an industry leader, catering to the needs of urban areas and ushering in a new era of UAM.
What is EHang’s approach towards R&D?
EHang’s R&D efforts are strategic and in line with the Company’s overall business development strategy and have not resulted in excessive expenditures. We highly value the confidence our investors have in us and are committed to not wasting investors’ money on money-pit R&D projects with unpromising commercial prospects. Our commitment to making every penny well spent pushes us to identify and prioritize our eVTOL products and technologies that are critical to our commercial success, while taking full advantages of China’s expansive, cost-efficient supply chain network.
For example, autonomous vehicles are safer and more efficient for urban transportations if we have an intelligent command-and-control center to manage all vehicles. As such, we worked tirelessly to build a team of dedicated and reasonably compensated engineers, who have since accumulated a wealth of experience in designing large-scale command-and-control systems with us. Today, command-and-control technology for autonomous eVTOLs is one of EHang’s leading core technological strengths.
Our R&D approach has delivered excellent results at reasonable costs. As of March 31, 2023, we have built a large UAV-related patent portfolio containing 331 patents issued in China, making EHang a global leader in autonomous eVTOL R&D with a cumulative R&D expenditure of approximately RMB655.1 million since 2017. Moreover, our R&D strategy helped us obtain the world’s first TC for autonomous eVTOL product from the Civil Aviation Administration of China in 2023. Our TC certification is the most powerful proof that our R&D strategy is both sensible and successful.
Going forward, as we are a listed company with better access to capital markets and have obtained TC for EH216‑S, we plan to invest in R&D more aggressively and ramp up production to strengthen our technology leadership in the air mobility industry. However, financial prudence will continue to guide our approach to R&D activities as we pursue our long-term growth strategies, no matter what our global peers are doing with their financial and other resources.
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