As valuations skyrocket for urban air mobility startups, a dispute between China’s EHang and an activist short seller has underlined the challenges of investing in a nascent industry chasing a market that does not yet exist.

• EHang rebuts allegations of sham sales
• Investors invited to view eVTOL factory

The electric vertical-takeoff-and-landing (eVTOL) vehicle developer is defending itself against a highly critical investigative report by short-biased due-diligence company Wolfpack Research. The report alleges EHang “is an elaborate stock promotion, built on largely fabricated revenues based on sham sales.”

Most of the allegations center on sales to major customer Shanghai Kunxiang Intelligent Technology (Kunxiang), but Wolfpack also disputed EHang’s claims of progress with production and described its autonomous two-seat EH216 multicopter eVTOL as “majorly flawed” and “inherently dangerous.”

EHang responded by defending its decision to focus on autonomous vehicles, detailing its R&D expenditures and intellectual property (IP) portfolio, providing an update on completion of its new production facility in Guangzhou and releasing details of its sales contracts with Kunxiang.

The startup’s share price, which peaked at $124 on Feb. 12 amid reports that Volkswagen was looking at partnering to develop an urban air taxi in China, fell 60% when the Wolfpack report was released. Its market capitalization, which had soared above $6 billion, was hovering around $2.5 billion by Feb. 26.

Founded in 2014, EHang was the first eVTOL developer to go public, through an initial public offering in December 2019, and some of its troubles can be attributed to its inexperience as a publicly traded company. But some of Wolfpack’s accusations echo concerns raised by others in the UAM industry.

Rival eVTOL manufacturers such as Wisk, which is similarly developing a self-flying two-seat air taxi, have expressed concern that EHang may be moving too fast, helped by a supportive regulator, the Civil Aviation Administration of China, which is using drone regulations to approve EH216 trial operations.

Perhaps more damaging for EHang, Wolfpack’s report quotes critical comments by Mark Moore, the former NASA eVTOL pioneer who co-founded Uber’s Elevate aerial ride-sharing initiative. Criticizing the safety and quality of the EH216, Moore says the configuration “is inherently not safe” and expresses “significant reservations” about whether the eVTOL can be certified to carry passengers in the U.S.

Calling on EHang to play by the same rules as other leaders in the eVTOL industry, including fully disclosing accidents and providing greater accuracy in reporting progress, Moore tells Aviation Week: “I have significant concerns about their concept, their component technologies, their testing operations, and their attempts to suggest publicly that they are much further along than they really are.”

Responding to the Wolfpack report, EHang says its decision to develop autonomous vehicles is based on safety and efficiency and is key to bringing air mobility to the mass population. Defending its IP portfolio, the company listed core technologies it has developed in areas such as redundant automatic flight control and battery management as well as propulsion, mission management and collision avoidance.

Rebutting the accusation of “anemic” R&D spending, EHang says it has invested $37 million since 2014. This is low compared with Western eVTOL developers. “We do not have a culture of burning money for white elephant money-pit projects. Every penny counts,” says EHang founder Huazhi Hu. “Only snobs will overestimate the power of money but underestimate the power of will of self-devoting engineers.”

Facing lawsuits from investors, EHang has launched legal action against Wolfpack Research. The startup also has scheduled an investor day for late June at its new 600-unit-a-year eVTOL production facility in Yunfu, China, which is planned to come on line in the second quarter. Demonstrating solid progress will be essential for EHang as it seeks to rebuild investor confidence.