Global Stock Market

Highflying EHang Will get Lesson in Inventory Market Aerodynamics

EHang Holdings Ltd., the Chinese language startup that hopes to revolutionize short-distance transport with its self-flying autos, is getting an undesirable lesson on the aerodynamics of economic markets after a short-seller assault despatched the corporate’s inventory tumbling.

The Tuesday assault by Wolfpack Analysis sparked a selloff that noticed EHang shares lose greater than half their worth, falling from $124.09 to finish the buying and selling day at $46.30 on greater than 10 occasions its typical quantity. The shares regained some floor after EHang issued its personal response the subsequent day. However at their Wednesday shut of $77.73 they had been nonetheless properly beneath their pre-attack stage.

“It looks like the corporate is a primary quick goal: merchandise are very early stage and profitability hasn’t taken off but,” stated one analyst at a mid-sized brokerage, talking on situation his title not be used as a result of firm coverage. “The allegations are regarding, and regardless of the corporate’s efforts to refute them, it wouldn’t be shocking if there was extra turbulence forward for the inventory.”

Like many quick sellers, Wolfpack alleged a wide-range of economic misconduct by the corporate in its prolonged report. Chief amongst these was its allegation that EHang’s relationship with its main said buyer, Shanghai Kunxiang Clever Know-how Co. Ltd., was “a sham.” 

Earlier EHang disclosures to the U.S. securities regulator present that Shanghai Kunxiang, simply 9 days after its founding, signed a purchase order take care of EHang value 450 million yuan ($70 million). 4 months later it signed one other deal value 30 million yuan. Wolfpack identified that Kunxiang had registered capital of simply 10 million yuan, including its view that such a weak capital base would make it tough for the corporate to execute the purchases reported by EHang.

Wolfpack added it had visited Kunxiang’s workplaces, the place an worker stated the corporate had made a 100 million yuan pre-IPO funding in EHang.

“EHang is an elaborate inventory promotion, constructed on largely fabricated revenues primarily based on sham gross sales contracts with a buyer who seems to us to be extra eager about serving to inflate the worth of its funding in Ehang, i.e. pump EHang’s inventory worth, than really shopping for its merchandise,” Wolfpack stated. “We’ve gathered intensive proof together with behind-the-scenes images, recorded cellphone calls, and movies of on-site visits to EHang’s varied amenities, in addition to Kunxiang’s workplaces, which lead us to consider that Kunxiang signed sham gross sales contracts to learn its funding inventory worth in EHang.



Quick sellers like Wolfpack generate profits when shares of an organization they aim go down. They try this by borrowing shares of the corporate and promoting them into the market, then ready for the worth to go down to allow them to purchase them again for much less and pocket the distinction.

EHang raised a modest $40 million in its New York IPO in December 2019, and watched its shares largely stagnate for many of their first years of buying and selling as traders remained unimpressed by a gentle string of milestones for its autonomous air autos. However the inventory out of the blue got here to life three months in the past, and soared almost tenfold between Dec. 1 and the discharge of the Wolfpack report.

A day after the report’s launch, EHang got here out with its personal prolonged assertion explaining its enterprise and capturing down the allegations towards it.

“The reality is that Kunxiang has by no means been a shareholder of EHang previous to our IPO, and to the most effective of our data, after our IPO both,” EHang stated. “The pricing and different phrases provided by EHang to Kunxiang should not considerably totally different from these provided to different main clients in China and all contracts with Kunxiang are primarily based on arm-length transactions.”

EHang sits alongside a small secure of different New York-listed Chinese language firms engaged in new-concept transport whose shares have out of the blue develop into investor darlings. A lot of the others are money-losing electrical automobile makers with names like Nio Ltd. and Xpeng Inc., whose excessive inventory costs have additionally made them tempting prey for opportunistic quick sellers.

Nio listed in late 2018 and its shares additionally largely stagnated after that, earlier than catching hearth and rising about tenfold since final June. Equally, Xpeng, which listed halfway by means of final yr, has seen its shares double since November.

Chinese language firms have develop into short-seller favorites within the final yr following the run-up in share costs of many. Final April Wolfpack launched one other assault towards iQiyi, considered one of China’s main on-line video suppliers, claiming the corporate inflated its 2019 income by roughly 8 billion yuan to 13 billion yuan. And final November, notorious quick vendor Muddy Waters accused social media agency Joyy Inc. of fraud, saying it was “responsible of bot forming, creating faux transactions and having faux customers.” 

Maybe most famously, the downfall of former Starbucks challenger Luckin Espresso additionally started final yr with the publication of a brief vendor report that accused the corporate of massively inflating its gross sales — claims that had been later discovered to be true by an inner firm investigation.

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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