EHang Cuts Proposed NASDAQ Price by Almost Half, to USD 46.4 Mn
COVID-19 and China
Image credit: EHang website.

EHang (亿航智能) is an autonomous aerial vehicle technology platform company. EqualOcean has reported on November 1 that EHang had filed a prospectus with the US Securities and Exchange Commission (SEC), looking to raise up to USD 100 million from an initial public offering on Nasdaq. Now, the deal size has been cut in half to USD 46.4 Mn.

The main purpose of EHang's IPO is financing. Public data shows that the latest round of financing for EHang took place in 2015, raising USD 42 million. With its continuous loss-making, EHang may currently face a dilemma of over a lack of cashflow. 

As of the date of its prospectus (October 31, 2019), EHang has delivered 38 passenger-grade Autonomous Aerial Vehicles (AAV) for testing, training and demonstration purposes and developed two command-and-control centers for smart city management. unfilled purchase orders for 28 passenger-grade AAVs. 

To keep competitive, drone makers have spent a fortune in R&D, however, we've noticed that EHang's R&D expenditure in percentage of total revenue is decreasing. 

In addition, there was a significant increase in accounts receivable in the first half of 2019.

Compared with the 2018 year-end, the account receivables increased USD 10.7 million for the first half of 2019, which accounted for 33% of the total revenues of the same period. This is also a sign of its cash flow pressure.

Although the drone hype is gradually disappearing, the drone market is expanding.  The market research company IDC predicts that the drone market will reach CNY 12.3 billion in 2019, and the global drone market will grow at a compound annual growth rate of 30% in the next five years. This means that EHang's future rivals will increase in size. If it cannot be listed in advance of these changes, it may miss a crucial opportunity and face more severe competition in the future.

DJI is still leading the market

Both EHang and other UAV companies are facing similar issues, such as security hiccups, related department supervision, and so on. But for EHang, in addition to financing, the biggest problem may be the competition with DJI - it's difficult to compete with DJI in terms of revenue and market share. 

In terms of market share, DJI drones are in a dominant position. DJI has created a new consumer drone market through technological innovation. It occupied about 80% of the global market share in 2015 and exceeded CNY 10 billion in output value in 2016. 

In terms of revenue, there is a large gap between those two players. In 2014, DJI's total annual revenue was approximately CNY 2.72 billion (in 2015, 2016, and 2017, it was 5.98 billion, 9.78 billion, and 17.57 billion respectively). DJI's financing documents disclosed that its compound revenue growth rate from 2012 to 2021 is expected to exceed 90%, and its net profit compound growth rate is expected to exceed 70%. Based on this calculation, by 2021, DJI's operating income will reach CNY 53 billion, and its net profit will exceed CNY 6 billion. However, EHang is still loss-making (2019H1 net loss CNY 37.6 million).

According to Frost & Sullivan, the global urban air logistics and transportation market size is expected to reach USD 46 billion in 2023, with the Chinese market expected to become the world's largest market, accounting for about 45%.

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