EHang's Order Book Takes Flight as Cash Pile Glides to Earth

Key Takeaways:

• EHang has announced a major new deal to sell 100 of its autonomous air vehicles to an Indonesian buyer, doubling its order book for this year
• Company is slashing expenses as its cash fell to 237 million yuan at the end of March from 480 million yuan a year earlier

By Doug Young

A look at the latest earnings report from EHang Holdings Ltd. EH appears to show a company finally taking off with a flood of new orders for its autonomous mini-helicopters in the first quarter and second quarters. In all honesty, the report does seem rather impressive, as it does appear to show that rewards are finally starting to materialize after years of effort.

The main reason for our slight cynicism is that most of the deals and other major developments discussed in the latest report are actually recycled from the company’s last earnings report, meaning they’re not really so new. But a deal is a deal. And given that not too many people probably follow this company that closely, it’s certainly worth repeating when you get any major new orders.

Perhaps such sentiment was behind a 7% rally in EHang’s shares in the two trading days after the results came out. That provided a nice lift for the company, whose stock is still down 43% this year and now trades about a quarter below its IPO price from late 2019. But those who follow U.S.-listed Chinese stocks know that a 25% decline looks rather mild these days when one considers that many of EHang’s U.S.-listed Chinese peers have fallen much more.

In terms of valuation, EHang actually trades at a fairly lofty price-to-book (P/B) ratio of 9.5, far higher than the 2.6 for German peer Lilium LILM and 1.5 for TuSimple TSP, a Chinese company developing similar autonomous technology for trucks.

EHang may be faring better than its U.S.-listed Chinese peers because it operates in a less-controversial area by producing cutting-edge hardware, an area Beijing typically supports. By comparison, many of the more beaten-down companies produce digital content for mass consumption that has become a focus of numerous government crackdowns over the last year. From a regulatory perspective, EHang mostly answers to aviation authorities, in this case the Civil Aviation Administration of China (CAAC), which appears to be supporting the company’s efforts to bring its autonomous air vehicles to market. More on that shortly.

The bigger picture for EHang is that its air vehicles appear to be rapidly gaining altitude not only in China but also a range of other Asian markets. Before late last year, EHang had sold only a handful of its autonomous vehicles outside China, mostly to the companies that are now coming back with larger pre-orders following their earlier trials. The company’s products certainly seem to have a potential audience due to their novelty factor and suitability for use in scenic tourist spots.

All that said, we’ll delve more deeply into the company’s latest report with the two new deals that weren’t mentioned in the last quarterly report. The larger of those saw Indonesia’s Prestige Aviation pre-order 100 units from EHang’s 216 series of air vehicles in April, following its earlier purchase of a single aircraft that it trialed in the resort town of Bali and in Jakarta, the nation’s capital. The other deal saw EHang form a partnership last month with major Thai conglomerate Charoen Pokphand Group. That pair intend to form a joint venture to sell EHang’s products in Thailand, which we all know is famous for its massive tourism industry and scenic beaches.

Growing order books

The Indonesia deal roughly doubles the number of vehicles on order for EHang, bringing the total to 210 this year. In January the company signed a pre-order to sell 50 of its 216 series air vehicles to Japan’s AirX Inc., which operates helicopter sightseeing tours and private helicopter services. It noted AirX could be planning to provide air taxi services for the 2025 World Expo in Osaka. In March EHang signed a similar pre-order to sell 50 units from the 216 series to Aerotree Flight Services of Malaysia, as well as another 10 units from its longer-range VT-30 series.

Last but not least, the company also rehashed a previous announcement that the CAAC in February issued a specific set of conditions providing clear requirements for certification of its EH216-S vehicle. Such certification would not only mark a big advance in EHang’s home China market, but would also represent a major confidence booster for aviation authorities and potential customers in other countries.

All of this looks quite positive for EHang going forward, even if the company’s latest financials aren’t anything to get too excited about.

The company sold just three units from its 216 series in the first quarter of this year, down from 15 a year earlier. As a result, its first-quarter revenue plunged to just 5.8 million yuan ($867,000) from 23 million yuan a year earlier. But the reality is that even the year-ago figure, while much higher, is still just peanuts compared to what the company will need to sell to become profitable.

In that regard, EHang posted a net loss of 68.8 million yuan in the first quarter, roughly the same as its 62.5 million yuan loss a year earlier. The company does appear to be reining in its spending, with total operating expenses down 18% year-on-year to 112.7 million yuan and down by an even larger 40% quarter-on-quarter. It may be taking such steps in a bid to conserve its cash, which dropped to 237 million yuan from 480 million yuan a year earlier.

EHang’s stock was once a high-flyer, rising as high as $66 last year from its IPO price of $12.50 on heavy self-promotion for its autonomous air vehicles. But the stock crashed last February after a short seller raised doubts about the company’s business. The latest string of announcements do seem to show there’s a real market for its products, though deliveries for the 200-plus orders are likely to come in over several years if the vehicles are ultimately certified. In the meantime, we can probably expect the company to do some new fundraising within the next year, since its current cash looks likely to run out well before it starts to generate any serious revenue.