EHang CFO Says the Future of the Auto Market is Literally Up In the Air
Among the first to reach the commercial stage, the Chinese drone maker is establishing global partnerships for the future air taxis.
Think air taxis is something of the distant future? This company, EHang Holdings Ltd. (Nasdaq: EH), wants to prove you wrong. In fact, this recently-listed Chinese maker of passenger-grade autonomous aerial vehicles (AAVs) believes that its sector will become the new auto market in just a few years.
"We're in a new industry with tremendous potential," Richard Liu, EHang's chief financial officer, told CapitalWatch in an interview on Thursday.
EHang lifted off in trading in mid-December, selling $40 million worth of its American depositary shares, to raise its brand awareness on a global scale. Since IPO, the stock in EHang has performed relatively well compared to many other China-based firms listed in the past six months amid the market meltdown caused by the outbreak of COVID-19. On Friday, EH shares closed at $12.06 per ADS – lower, but not substantially below its offering price of $12.50. During the same period, the Nasdaq Composite plunged 13%.
Over the past few months, the company has received permits and tested its flagship product, all-electric two-seater EHang 216, in a number of overseas sites, including its North Carolina flight in January.
Overall, the company has completed more than 2,000 trial flights in China, Austria, the UAE, the Netherlands, Qatar, and the United States. It has also received operational permits in Norway and Spain. At its home base in Guangzhou, EHang is also working with the authorities to set up a low-altitude aviation transport network to shuttle passengers and cargo.
Liu said, "If an investor is interested in the urban air mobility (UAM) market, we would suggest them to look at EHang, because we are the leader in this industry and the only company that has entered commercialization."
While the company is taking strides to stay ahead, EHang has some deep-pocketed competitors, noted CW columnist Donovan Jones, creator of VentureDeal. Some of EHang's major rivals that provide or are developing autonomous aircrafts are Boeing Co. (NYSE: BA), Airbus (EPA: AIR), Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman (NYSE: NOC), and Uber (NYSE: UBER).
A 2019 research report by Markets and Markets, forecasted a CAGR of 17% for the global autonomous aircraft market from 2018 to 2030, reaching $23.7 billion. A longer-term estimate by Morgan Stanley projects the global UAM industry to reach $1.5 trillion by 2040.
Even more companies are focused on non-passenger-grade drones. Shenzhen-based DJI, for example, specializes on camera drones and is now urging customers to explore outdoors even while they are practicing quarantine amid COVID-19. EHang's commercial drone, Falcon B, focuses on smart city uses and is promoted for mapping, surveillance, monitoring of weather, pollution, and fires, as well as to carry emergency supplies.
Set on "Making it Possible"
Last year, EHang sold 61 AAVs to customers around the globe, with more than a third of the units sold during the fourth quarter. It scored revenues of $7.9 million in the year-end trimester, a fivefold increase year-over-year, and a 57% jump from the third quarter. Losses narrowed to $20,000, EHang reported.
A new, cash-burning business, Liu says EHang has been "running on a very lean operation model" and is "very conscious" about expenses. In addition, as a pioneer in the sector – with no commercial-stage competitors – EHang controls the price of its AAVs, which Liu said increased in the fourth quarter to an average of 1.4 million yuan (about $197,400) per unit.
Clients who buy EHang's AAVs in quantity pay a lower price. In 2019, one customer purchased more than 20 units, according to Liu.
Like everyone else, the company was negatively impacted by the coronavirus outbreak in the first quarter, and Liu said it has not yet fully recovered. The supply chain was disrupted and the workers, some of them from outside Guangdong province where EHang is located, were slow returning to work after a fall in demand.
However, despite first-quarter setbacks, EHang still expects at least 200% revenue growth this year, EHang CFO said.
"The whole team is working very hard, keeping their minds on the goal."
Liu added, "We're the leader in this new industry. There are existing use cases where we have already applied our passenger-grade AAVs to, there are also new opportunities coming up."
COVID-19 has also opened up new potential uses of AAVs, both in passenger and non-passenger grade. Liu told CapitalWatch about a new emergency-use scenario, which EHang began exploring this year. Liu said the company will keep it undisclosed to the public for the time being.
Asked about the biggest challenge that EHang has faced, Liu said that finding talent for this new industry – both in China and around the world – has been difficult.
"We have less than 300 staff," Liu told CW. "We are looking at fast growth and that growth needs to be supported by an expanding team. We are seeking talents – not only in China, but in Europe – talents with similar skillsets, but it is hard to find the perfect candidate."
Richard Liu has been with EHang for more than four years and has seen it grow from development stage to commercialization. He has seen the ups and downs at the company and explored the uncertain, which had made his experience at EHang all the more valuable.
Over the next two years, the world's largest cities will operate AAVs for a multitude of uses, Liu believes.
Liu said, "We make impossible things possible."