Growth Stocks: EHang Holdings

EHang Holdings (EH.US), a technology company based in Guangzhou, which is dedicated to the manufacturing of autonomous aerial vehicles (AAV - Drones), for civil and commercial use. Such as passenger and freight transportation, inspection and surveillance, public safety and emergency management (organ transportation), it has obtained certification for its EH216-S model, becoming the first company in its sector to achieve this milestone.

EHang model EH216-S. Source: EHang

Anticipation of this certification has fueled a +200% rise in EHang stock over this year and +670% over its lows from October 2022.

Recall that recently, EHang announced that in anticipation of an upcoming announcement related to a very significant development (certification) in its business operations, the Company voluntarily applied to the Nasdaq Stock Exchange LLC, to approve its suspension from the market. Nasdaq approved to temporarily suspend trading in the Company's American depositary shares ("ADSs") from the opening of the Wall Street market on October 9, 2023.

The company itself had to take advantage of the "safe harbor" declaration, to protect the company from what ultimately was an announcement of special relevance for its price.

Despite suspending trading in its shares early last week, the company has resumed trading after receiving full certification. EHang's current market capitalization is $994 million, and this certification confirms that the EH216-S design fully complies with the safety standards and airworthiness requirements of the Civil Aviation Administration of China (CAAC).

The company is now positioned to grab a share of the nascent global urban air mobility market, overtaking its competitors in the electric vertical take-off and landing (eVTOL) space.

EHang's historically strong performance could be repeated in 2024, highlighting the possibility of its competitors facing new lows due to continued expenses and certification difficulties. The evolution during 2023 is spectacular if we compare it with its competitors. Source: xStation.

EHang obtained CAAC certification in August 2023 for its Unmanned Aircraft Cloud System (UACS), paving the way for commercial operations following full certification of the EH216-S. The company improved its liquidity by raising $23 million and maintaining a cash position of $17.5 million at the end of the fiscal second quarter of 2023.

Chinese Order Portfolio

It highlights the importance of sentiment in a sector marked by the boom in operations in early 2021. China is mentioned as leading in the drone space, with DJI as the world's largest company in consumer drones. The Chinese authorities have shown support for national companies in this sector, considered an industry of the future. The potential of electric vertical take-off and landing (eVTOL) vehicles is highlighted, with EHang focused on deliveries, emergency response and tourism, in contrast to its competitors' exclusive orientation towards air taxi services.

EHang graph in weekly temporality. Historical maximum and minimum. Source: xStation

During the second quarter earnings call, EHang updated shareholders on its partnership with Xiyu Tourism, a leading tourism company in China. A joint venture has been established, and EHang has delivered the first batch of five-minute EH216-S AAV to the joint venture (JV). Xiyu will use the EH216-S for low-altitude tourism and sightseeing in scenic areas of northwest China, including Tianshan Heavenly Lake.

The joint venture plans to operate at least 120 units of the EH216-S in the next five years, compared to an order book of more than 100 units for the EH216-S in China and more than 1,200 units of the EH216 series, as well as pre-orders of the VT-30 abroad.

Commercial implication of certification

The certification of the EH216-S to transport passengers was announced on October 13, making EHang the first public company to receive such certification from a national regulator. This comes almost three years after the certification application was submitted in January 2021. The EH216-S, which has passed tests during the validation process, now has an advantage over its competitors in gaining market share in the emerging market urban air mobility. Morgan Stanley estimates the base case market in 2040 at $1.5 trillion, highlighting the significant commercial implication of this certification.

EHang September 2023. Investor Relations presentation

During its second quarter earnings presentation, EHang updated shareholders on its partnership with Xiyu Tourism, a leading tourism company in China. A Joint Venture (JV) has been established, and EHang has delivered the first batch of five models of EH216-S AAV to the JV, Xiyu will use the EH216-S for low-altitude tourism and sightseeing in tourist areas of northwest China , including the Tianshan Heavenly Lake. The JV plans to operate at least 120 units of the EH216-S in the next five years, compared to the order book of more than 100 units for the EH216-S in China and more than 1,200 units of the EH216 series, as well as pre-orders for the VT-30 abroad.

EHang model VT-30. Source: EHang

The certification of the EH216-S to transport passengers was announced on October 13, making EHang the first public company to receive such certification from a national regulator. This comes almost three years after the certification application was submitted in January 2021. The EH216-S, which has passed tests during the validation process, now has an advantage over its competitors to capture market share in the emerging market urban air mobility. Morgan Stanley estimates the base case market in 2040 at $1.5 trillion, highlighting the significant commercial implication of this certification.

Darío García, EFA
XTB Spain