Guangzhou-based EHang files for $100 million IPO, revealing its finances and how it perceives risks to the urban air mobility business. Pictured: EHang 216s ready for delivery. (EHang)
Chinese autonomous vehicle maker EHang, one of the companies at the forefront of the push for urban air mobility (UAM), has filed for a $100 million initial public offering (IPO) on the Nasdaq. Its filing documents offer new information about the company’s finances, partnerships and understanding of the risks associated with the UAM business model.
EHang breaks down its revenue into three parts: air mobility, smart city management and aerial media. Prior to 2019, the vast majority of the company’s revenue came from the latter two categories, as EHang designed command-and-control systems for drone use in cities and used powerful mass-vehicle-management software to perform light shows with hundreds of drones.
Revenue from air mobility — which EHang describes as its “core business” — consists of sales of passenger-grade autonomous aerial vehicles, or AAVs, and the provision of logistics services. In 2018, air mobility comprised just 4.7 percent of the company’s total income.
This changed dramatically in the first six months of 2019, with revenue from air mobility solutions increasing “by 919.8% … in the six months ended June 30, 2018 to $3.5 million,” during which that revenue stream accounted for 73.7 percent of the company’s income. But with the relatively small quantity of vehicles delivered and services rendered, as UAM is still a sector under development, a 919.8 percent increase in air mobility revenue is impressive but perhaps less meaningful.
At the time of filing, EHang had delivered 38 passenger-grade AAVs with unfilled orders for 28 more, which the company says are mainly for “testing, training and development purposes.” The company’s two passenger-grade AAVs currently in production are the EHang 116 and 216, which have one and two seats respectively. Thirty-seven of the 216 model have been delivered and just one 116. The latter is an enhanced version of the EHang’s original design, known as the 184.
“At our design and testing center, we have established a multitude of AAV flight tests, including climbing flight tests, high maneuverability tests, speed tests, night flying tests, as well as flight tests in harsh weather conditions,” EHang’s filing notes. “We have conducted over 2,000 passenger-grade AAV flight tests, including in winds of up to 70 kilometers per hour and in fog with a visibility of approximately 50 meters.”
"Passengers can select their destinations from several pre-programmed options through an intuitive operating interface embedded in a 12-inch control panel in front of their seats." (EHang)
These vehicles are also intended for non-passenger, logistics-oriented use. In 2016, Lung Biotechnology PBC signed an agreement to purchase 1,000 AAVs from EHang for automated organ transplant delivery in the U.S., contingent upon regulatory FAA and FDA approval for both the aircraft and their use to deliver organs. Lung Biotechnology and its parent company, United Therapeutics, have invested a combined $17 million into EHang.
EHang’s IPO filing includes a few hints to its future plants, including discussion of future air mobility business models beyond direct sales of AAVs and logistics services.
“We plan to explore new monetization opportunities by leveraging our AAV technology platform,” the filing reads. “For example, we may charge recurring fees for our operational and maintenance services for our AAVs. We may also enter into revenue sharing arrangements with customers to capture greater business opportunities.”
According to the prospectus, EHang has ongoing partnerships in China with Yonghui Superstores, which it describes as “one of China’s largest supermarket chains,” and air logistics provider DHL-Sinotrans. EHang provides Yonghui Group with non-passenger-grade AAVs as well as training and technical support, and the supermarket group operates the delivery service.
“We charge Yonghui services fees based on the number of deliveries made, subject to a minimum monthly fee,” EHang’s prospectus notes.
For the partnership with DHL-Sinotrans, a joint venture of global logistics giant DHL Express and Chinese-based Sinotrans, EHang provides the company with “a set of tailored software products, hardware products and services to complete the unmanned deliveries designated by DHL-Sinotrans.” EHang describes the project as a last-mile delivery service along a customized eight-kilometer route.
EHang's partnership with Yonghui Group marked the first urban UAV logistics/delivery air routes approved by authorities in China, according to Frost & Sullivan. (EHang)
Outside of China, EHang is working with Germany’s Vodafone for 5G connectivity and technology innovation as well as Austria-based FACC to manufacture its AAVs. EHang currently has 138 patents issued in China with another 134 pending patent applications.
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EHang’s filing also includes a lengthy discussion of the risks facing its business, which is typical in an IPO prospectus but noteworthy because the global passenger urban air mobility market is mostly unproven and expected to grow at 531 percent annually for the next five years, according to market analysts Frost & Sullivan, reaching a value of $3 billion by 2023.
EHang cites the following as some of the risks to its business:
- The demand for, and customers’ willingness to adopt, air mobility solutions
- Unpredictable timelines for regulatory approval and/or new restrictions that EHang or its customers may be unable to comply with
- Limited production capacity
- Substantial customer concentration, with one customer accounting for 45 percent of EHang’s revenues in the first half of 2019
- An accident involving an autonomous aerial vehicle, whether it is produced by EHang or another manufacturer
- Intensifying competition in the unmanned aircraft industry
- A significant cybersecurity incident disrupting EHang’s operating systems or command-and-control centers
EHang may also be citing overly-optimistic market forecasts, presenting another problem to investors hoping for quick returns in a nascent market subject to heavy regulation that doesn't exist yet. Phil Finnegan, director of corporate analysis at the Teal Group, said his firm does not have a passenger UAS market forecast and believes the market will take a considerable amount of time to develop.
"Obviously there is a lot of risk in such an immature market," Finnegan told Avionics International. "In the past year several prominent venture capital funded UAS businesses have gone out of business and more are struggling. Simply have an interesting technology does not guarantee success ... Ehang's previous effort to break in the market was a disappointment. The company planned to introduce its Ghost UAS to compete as a consumer drone, but it failed to gain significant market share against the market leader DJI Innovations."
Michael Blades, vice president of aerospace, defense and security at Frost & Sullivan, described EHang's IPO as a "sucker's bet," adding that he thinks its AAVs are poorly designed, with eight pairs of spinning rotors at knee or waist-level rather than above the passengers such as in Volocopter's designs.
“I wouldn’t invest. There will be a few winners in this market, but it will likely be established aircraft manufacturers like Boeing, Bell and Airbus who have been through the certification process,” Blades said.
This article has been updated to include comments from Teal Group's Phil Finnegan.