Please ensure Javascript is enabled for purposes of website accessibility

Why EHang Holdings Stock Plunged on Tuesday

By Lou Whiteman - Feb 16, 2021 at 5:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese air taxi company was the target of a scathing short report.

What happened

Shares of EHang Holdings (EH -2.41%) fell 62.7% on Tuesday after the Chinese "flying car" company was the subject of an unfavorable report from short-seller Wolfpack Research. The report resonated, sending the stock plummeting on nearly eight times the stock's normal daily volume.

So what

EHang is developing an autonomous air taxi, and the company has captured investor interest in recent weeks. The stock was up more than 450% for the year as of earlier this week, but that all changed on Tuesday after Wolfpack put out its report.

Artist illustration of flying taxis.

Image source: Getty Images.

The research firm accuses the company of being "an elaborate stock promotion," built largely on what it claims is sham sales contracts with parties that Wolfpack says appear "to be more interested in helping inflate the value of its investment" than buying products.

Wolfpack said that based on government records and credit reports, it believes EHang's primary customer is an entity called Shanghai Kunxiang Intelligent Technology. But Wolfpack said its "behind-the-scenes photographs" and visits to facilities "lead us to believe that Kunxiang signed sham sales contracts to benefit its investment stock price."

Now what

Reports critical of a company, just like reports that are bullish, should not be taken at face value. Some are on target, some are not, and investors should always read past the headlines. In this case, there appears to be enough to Wolfpack's allegations to at least merit caution, which explains the sell-off.

Even without the Wolfpack report, EHang shares appear to have gotten ahead of themselves, so some of the dramatic decline could simply be profit-taking after an impressive run higher. Either way, I'd advise investors to watch this play out from the sidelines for now to see what more comes out about Wolfpack's allegations.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

EHang Holdings Limited Stock Quote
EHang Holdings Limited
$7.69 (-2.41%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.