How far can the drone show “star” Yihang “fly” in the US listing of the “first drone”?

As we all know, drones are a money-burning industry. The concept is good, the stories are heard, and the application scenarios are broad, but whether the income can support research and development is an unavoidable problem for drone companies.

UAV is a money-burning industry. It has a good concept and stories are heard. The application scenarios are broad, but whether the income can support R&D is an unavoidable problem for UAV companies. On December 12, U.S. time, Guangzhou EHang Intelligent Technology Co., Ltd. (hereinafter referred to as “EHang”) officially landed on Nasdaq with the stock code “EH”, and issued a total of 3.2 million American Depositary Shares (ADS). Shares were offered at $12.50. This means that EHang was listed earlier than DJI and Jifei, and became the “first drone company”.

However, at the business level, EHang’s consumer drones are difficult to compete with DJI. At present, EHang focuses its business on urban air transportation, drone formation performances, smart cities and other commercial drones. The data disclosed in the prospectus shows that EHang has not yet escaped losses. From January to September 2019, it achieved a revenue of 67.13 million yuan and a net loss of 47.84 million yuan.

Regarding the listing and business operations, EHang did not give a detailed reply to the reporter of China Business News. The company’s public relations person said that it was inconvenient to be interviewed due to the quiet period of listing. However, a number of industry insiders told reporters that it will take some time for some businesses of EHang to achieve profitability, and its related profit model is still being explored.

Drone show “star”

In the field of drones, EHang may not be as famous as DJI. However, in some important occasions in recent years, EHang’s drones are not uncommon, and its drone aerial performances are also favored by local governments.

According to public information, EHang’s drone aerial performances have appeared on occasions such as the 2017 Fortune Global Forum, the 21st anniversary celebration of the establishment of the Hong Kong Special Administrative Region, and the 2019 Nanjing Youth Olympic Lantern Festival. According to the prospectus, as of October 31, 2019, EHang has completed more than 70 aerial performances.

However, EHang also has “overturned” times. On the evening of May 1, 2018, at the first show of “Red May·Xi’an City Wall International Cultural Festival”, the left drone pattern appeared in the “Spring Dance in Xi’an” thousand drone light and shadow ceremony held by EHang “garbled” phenomenon.

In addition to aerial performance drones, EHang also launched manned drones. At the Consumer Electronics Show (CES) in early 2016, EHang unveiled the world’s first passenger-grade autonomous aerial vehicle (AAV), the EHang 184. According to information from EHang, the EHang 184 can carry 1 passenger, has 8 propellers and 4 shafts, and can support short-distance low-altitude autonomous driving with pure electric power.

In fact, the “EHang 184” manned drone that made EHang famous has also brought a lot of controversy to it.

Industry insiders believe that EHang’s manned drone still has many problems in terms of feasibility, safety and legal aspects.

In fact, EHang started out in the consumer drone business in the early years. The price war in 2017 led to the withdrawal of a number of drone companies. Since then, DJI has become a “dominant” in the consumer drone market. EHang’s consumer drone business was also forced to make strategic adjustments, including closing its branch in Silicon Valley in the United States. For this reason, news of “EHang America filing for bankruptcy” was once reported in the industry.

DJI has made a lot of money in the consumer drone market, and does not seem to have a strong demand for capital. Recently, a person from DJI told reporters that DJI has no plans to go public for the time being. In contrast, some companies with smaller market shares are eager to leverage capital. For EHang, it has not gotten rid of losses and needs to continue to invest funds to open up new markets.

A person in the drone industry told reporters that “capital is a double-edged sword”, especially for technology-driven drone companies, once capital enters, there may be trade-offs.

According to the prospectus, in 2017 and 2018, Yihang’s net losses were 86.6 million yuan and 80.5 million yuan respectively, and the net operating cash outflow was 38.4 million yuan and 43.4 million yuan. In the first half of 2019, EHang posted a net loss of 37.6 million yuan ($5.5 million) and a net operating cash outflow of 39.9 million yuan ($5.8 million). In the first nine months of 2019, EHang’s net loss was 47.84 million yuan, which was narrowed from a net loss of 49.79 million yuan in the same period last year.

Specifically, EHang’s operating expenses are divided into three parts: one is sales and marketing; the other is administrative expenses; and the third is research and development expenses. In 2018, EHang’s expenditures in these three areas were 20.17 million yuan, 35.94 million yuan, and 60.28 million yuan respectively, accounting for 17.3%, 30.9% and 51.8% of the total operating expenses, respectively. Among them, R&D expenditure is the largest and accounts for the largest proportion, exceeding 50%. However, in the first three quarters of 2019, EHang’s R&D expenditure decreased year-on-year.

EHang said in its prospectus that it expects costs to increase in the future as it continues to expand its business and operations.

And EHang’s profitability depends to a large extent on orders and sales of AAV and AAV commercial solutions, how to achieve economies of scale, establish effective pricing strategies, the ability to effectively deal with the regulatory environment in different jurisdictions, and improve operations effectiveness.

Crisis and Opportunity for Core Business

EHang currently has four major segments, including urban air transportation business including manned flight and logistics distribution, drone formation performance, smart city and other commercial drones. EHang’s manned drones have already begun to be used in some fields, including medical emergency, offshore oil well transportation, aerial tours, and daily commuting.

From the perspective of revenue structure, urban air transportation business has become the core revenue source of EHang, which mainly includes the sales revenue of manned AAV and logistics service revenue. In the first nine months of 2019, the revenue ratio has reached 72.7%. %, compared with 4.5% in the same period in 2018. Correspondingly, the proportion of revenue from smart management cities and aerial media has dropped significantly. The former decreased from 47.1% in the first nine months of 2018 to 0.2% in the same period of 2019; the latter decreased from the first nine months of 2018. The month’s 46.6% fell to 26.1% in the same period in 2019.

EHang explained that smart city management solutions may be more concentrated in certain years or specific periods, and therefore will be subject to greater cyclical fluctuations. The decline in revenue from the Air Media Solutions business was in part due to increased competition in China’s air media market.

EHang said that its core business, air mobility solutions, grew significantly in the first nine months of 2019. Since 2019, EHang has accelerated the commercialization of passenger-class drones. In the third quarter of 2019, Ehang sold 18 passenger-class drones, compared with 17 in the first two quarters of 2019 combined.

In the air transportation solution business, in addition to manned drones, another business of EHang is logistics drones, which are used for short-distance transportation in cities. EHang had previously reached a cooperation agreement with Yonghui Super Species and logistics company DHL.

In April of this year, Xiong Yi, co-founder of EHang, publicly stated that air taxi or drone logistics can be commercialized. EHang’s drone logistics technology solution has matured. Regarding the drone delivery service cooperating with Yonghui Super Species, he said: “It’s not just a concept, but something that happens every day. EHang has completed more than 30,000 drone delivery flights. , 5 routes have been opened, and more than 6,000 community users can experience drone logistics and distribution services every day. This means that these 6,000 users can enjoy 15-20 minutes of air-speed delivery by drone.”

According to EHang’s prospectus, according to the cooperation agreement, EHang will provide Yonghui Group with non-passenger drones, training and technical support, while Yonghui Group will use EHang’s drones and services to provide delivery services. The pilot project was completed in September 2018, after which EHang and Yonghui Group formally cooperated for one year to carry out delivery services. EHang charges a service fee based on the number of deliveries.

According to data from market research firm Frost & Sullivan, the global commercial drone market was US$3.7 billion in 2018 and is expected to grow to US$103.7 billion in 2023, with a compound annual growth rate of 95%. 48%. This means that the UAV industry market is still expanding, and potential opponents are still increasing. EHang’s impact on the US stock IPO means that it will win more development opportunities in the capital market.

However, the AAV market risk that EHang is betting on cannot be underestimated.

EHang stated in the prospectus that the AAV market has a short development history and has not yet achieved large-scale development, so it hopes to continue to maintain customer concentration. If major customers stop purchasing products or services, cancel existing orders or fail to make timely payments to EHang, EHang’s business and results of operations will be affected.

The reporter learned that the “Guiding Opinions on the Airworthiness Certification of UAVs Based on Operational Risks” issued by the Civil Aviation Administration of China established the assessment, classification and management of UAV operation risks.

EHang said in its prospectus that it has received approval from the Civil Aviation Administration of China to conduct test flights of passenger-class AAVs in certain regions of China. But as far as EHang’s passenger-class AAV business is concerned, the operation of certain AAVs currently requires approval from the relevant authorities. EHang said that it will pay close attention to the regulations in this field, and if corresponding rules or regulations are promulgated in the future, it will do its best to comply with the requirements.

However, the reporter recently learned that the drone delivery service of the country’s first drone delivery experience store, which is co-operated by EHang and Yonghui Super Species, has been suspended. According to the clerk: “The cost of delivery is too high, and the area and route must be limited, which is not very convenient. This service is no longer available.” The reporter saw that the previous drone take-off and landing area has also been abandoned.

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