EHang finds more lift in its long flight to profits

The company’s third-quarter revenue surged as it continues to achieve milestones in the journey to commercialize its autonomous aerial vehicles

Key Takeaways:

• EHang’s third-quarter revenue soared 348% as its order book swelled after its self-flying aircraft got a key green light from China’s aviation regulator last year
• The company is getting close to starting commercial operations of its unmanned aircraft in China as it clears a growing number of regulatory requirements

By Warren Yang

There are plenty of signs that EHang Holdings Ltd. (EH.US) is making tangible progress in its ambition to send its self-flying aircraft to the skies en masse. Yet the journey requires quite a long taxi down the runway to large-scale commercialization, which may be leaving some ordinary investors running low on patience.

That said, EHang is certainly sending a steady stream of signals to try and keep those investors hanging on for what it hopes will be a long and profitable flight.

The latest signal came on Monday, when the maker of autonomous aerial vehicles reported its revenue soared 348% year-on-year to 128.1 million yuan ($18.3 million) in the third quarter as its order book expanded after it cleared critical regulatory requirements for mass production of its products. Even more encouragingly, the company’s impressive margins helped it generate positive cash flow from its operations for a fourth consecutive quarter despite its still-small revenue base.

EHang’s quarterly earnings reports normally feature long lists of achievements, and the latest was no exception. Among them were record quarterly sales of its main product line, the EH216. EHang sold 63 of the aircraft from that series during the quarter, a company record, up from 49 in the second quarter. Its fortunes are accelerating after it passed a critical milestone in October last year, when EHang received a crucial “type certificate” for its main product, the EH216-S.

Now the company is busy helping its customers prepare to operate its vehicles in various cities around China, including Hefei, Guangzhou and Shenzhen. In Hefei, the company worked with the city government to create a second site for the operation of the EH216-S, which EHang is targeting for tourism and intracity transport and logistics usages. In Hefei, the new site is for tourism, including zones for ticketing, waiting and boarding, as well as a command center, and charging and maintenance facilities.

In Guangzhou, EHang completed the first cross-river return flights with the EH216-S, showing how the vehicle can be used for aerial tourism and transportation to and from the city’s central business district.

Meantime in Hong Kong, EHang also signed a deal in July to sell 30 EH216-S vehicles to a subsidiary of bus operator Kwoon Chung (0306.HK) to start tourism and travel services in Hong Kong, Macau and the Mainland cities of Xiangyang and Shiyan by the end of 2026.

A key effort is underway to win an air operator certificate from the Civil Aviation Administration of China, a step required to commence commercial operations. EHang has submitted an application to the authority, which the company touts as a global first. EHang believes it will clear this regulatory requirement by year end. It’s also assisting its Mainland customers with obtaining the qualification.

“All of these achievements underscore EHang’s commitment and capabilities in accelerating our pace towards commercial urban air mobility operations,” CEO Hu Huazhi said on a conference call to discuss the latest quarterly results.

In addition, EHang is continuing to try to capitalize on opportunities overseas, as far afield as Brazil, where the company received a permit to start trial operations in September. Closer to home, the EH216-S this month operated with passengers onboard in Thailand for the first time.  

Tangible outcomes

With such tangible outcomes piling up, EHang’s finances are also improving as its operations start bringing in cash. That said, the company still remained in the red in the third quarter. But its net loss narrowed 28% year-on-year to $6.9 million, putting it on course to achieve profitability — something analysts polled by Yahoo Finance expect next year. And EHang is already cash flow positive and profitable on a non-GAAP basis, which excludes some non-operational items like share-based employee compensation.

This means that EHang is becoming increasingly capable of funding its business on its own, although external capital doesn’t hurt either. Last week, the company announced it inked an agreement to get $22 million from Zhuhai Enpower Electric (300681.SZ) and an investor from the United Arab Emirates (UAE). EHang already had a partnership with Enpower to co-develop electric motors for its aircraft.

The UAE investor’s interest also makes sense from a strategic perspective as the Middle Eastern country is among the key overseas markets that EHang is looking to develop. The company already has 100 pre-orders from the nation, including five that have been delivered. EHang says the investor will help it expand across the Middle East, as well as Southeast Asia, by utilizing existing networks.   

The latest investment pledge brings the total amount of funds EHang has raised this year to about $100 million. Such outside funds, combined with its own internally generated cash, have helped EHang to triple its cash holdings and short-term deposits and investments to about 1 billion yuan at the end of September from the end of last year. That means the company should have plenty of financial capacity to boost its operations going forward.

Despite all the positive developments, investors weren’t too impressed with EHang’s latest report. Instead of getting a boost from the disclosure, the company’s shares skidded 7.5% in Monday trade. The stock is also down about 7% this year, even as most U.S.-listed Chinese stocks are up following a rally dating back to September. Perhaps investors focused on EHang’s modest forecast for 138.5% revenue growth in the fourth quarter.

Or perhaps investors are simply well aware that it will still take some time before commercial operations of E-Hang’s vehicles start, even without any unexpected hiccup. The biggest danger could be an accident, which could significantly delay or even derail its commercialization plans. And whether unmanned aircraft will take off as expected remains a big question as it may take time before the general public embraces this new mode of transportation.

E-Hang shares trade at a price-to-sale (P/S) ratio of about 20 based on its 2023 revenue that was still quite low. If it meets analyst expectations for a near doubling of revenue next year to $826 million, the ratio drops to 1.2. That seems relatively low when one considers that international peers like Germany’s Lilium (LILM.US) aren’t really generating any revenue yet. That could present a good opportunity for investors to jump on board EHang’s stock if they believe the company’s flight to commercialization won’t run into turbulence.

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