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A passenger sits inside an autonomous aerial vehicle made by EHang Holdings during a test flight in Guangzhou, Guangdong province, on February 6, 2018. Photo: Reuters

Chinese flying taxi maker EHang denies short seller’s fraud claims after US shares plunge 63 per cent

  • A report by short seller Wolfpack Research has put in question drone maker EHang’s financial data
  • A US securities litigation firm said it is investigating EHang for potential violations of federal securities laws
EHang Holdings, one of China’s largest drone makers, has dismissed fraud allegations levelled against it by activist short seller Wolfpack Research, which resulted in the company’s US share price shedding nearly two-thirds of its value on Tuesday.

Nasdaq-listed EHang said in a statement issued on the same day that Wolfpack’s report about the firm was “deceptive” and contained “numerous errors, unsubstantiated statements and misinterpretation of information”, without elaborating.

The report, which was published on Tuesday, described EHang as “an elaborate stock promotion, built on largely fabricated revenues based on sham sales contracts with a customer who appears to us to be more interested in helping inflate the value of its investment” in the company.

It also accused EHang’s major customer, Shanghai Kunxiang Intelligent Technology, of signing “sham sales contracts to benefit its investment” in the Guangzhou-based flying taxi maker.


Flying taxi developed by Chinese and Austrian companies takes off in Vienna

Flying taxi developed by Chinese and Austrian companies takes off in Vienna

EHang’s share price closed 62.7 per cent lower at US$46.30 on Tuesday. The company had seen its stock soar since it debuted on Nasdaq in December 2019, reaching US$124.09 last Friday.

The company emphasised that it will “consider any necessary and appropriate course of action to protect” its interests and those of its shareholders.

An EHang spokeswoman said on Wednesday that the company will release a more detailed rebuttal of Wolfpack’s allegations.

The 33-page report published by Wolfpack said it had “gathered extensive evidence, including behind-the-scenes photographs, recorded phone calls and videos of on-site visits” to EHang’s various facilities, as well as Kunxiang’s offices.

In a separate statement on Tuesday, Boston-based securities litigation firm Block & Leviton said that it is investigating EHang for potential violations of federal securities laws.

Nerves, waiver, screaming, lift-off, joy: a two-minute test ride in a passenger drone from Ehang

The accusations against EHang have come 10 months after Chinese companies Luckin Coffee and TAL Education Group were put under scrutiny in the US for allegedly inflating their financial data.

A new scandal about corporate governance could dampen investor interest and tighten Washington’s scrutiny of Chinese companies seeking to raise funds on US markets.

New York-based Wolfpack, founded by American activist investor and short seller Dan David, has targeted other Chinese technology companies before. In April last year, it accused streaming video services provider iQiyi of inflating its 2019 revenue, which led to an investigation by the Securities and Exchange Commission. The company, whose parent firm is Baidu, said in October that an internal review found no proof of Wolfpack’s allegations.

Is it a bird, is it a plane? No, it’s Ehang’s flying taxi

Established in 2014 by Chinese engineer Hu Huazhi with backing from GGV Capital, EHang is one of several companies around the world that has set out to make flying taxis a reality. Its competitors include CityAirbus, Toyota Motor Corp’s SkyDrive and Tencent Holdings-backed Lilium.

EHang, which describes itself as the “world’s leading autonomous aerial vehicle (AAV) technology platform company”, said in a press release in January that it completed a test flight of its two-seater, passenger-grade AAV in the US.

The company already has a licence to operate its mobility services in Guangzhou and expected to start operating a line of commercial flying cars soon, EHang co-founder Derric Xiong told the South China Morning Post in an earlier interview.

EHang, however, still faces a number of regulatory issues, covering public safety concerns to personnel training and equipment maintenance, before its commercial flying taxi operations take off.