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Why EHang Holdings Stock Is Up Today

By Lou Whiteman - Feb 17, 2021 at 12:27PM

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The company is fighting back after a short report caused its shares to plunge.

What happened

Shares of EHang Holdings (EH -0.38%) rebounded on Wednesday after a rough trading session on Tuesday. The stock is up 37% as of 11:30 a.m. EST, recovering some of the 62.7% drop it recorded a day prior.

Tuesday's drop was due to an unfavorable report put out by short-seller Wolfpack Research. On Wednesday, we got EHang's rebuttal.

So what

EHang is a Chinese company developing an autonomous air taxi. The stock was having a good year heading into this week, up 450% in just six weeks, but Wolfpack deflated much of that move higher with a research report that accused the company of being "an elaborate stock promotion."

Wolfpack claims EHang's primary customer is not really interested in autonomous air taxis, but rather has signed "sham sales contracts to benefit its investment stock price."

Illustration of an air taxi hovering over a city.

Image source: Getty Images.

After markets closed Tuesday night, EHang issued a response to the allegations. The company in its statement said it "strongly believes that the report contains numerous errors, unsubstantiated statements, and misinterpretation of information."

The company said it will "consider any necessary and appropriate course of action" in response to Wolfpack.

Now what

Investors are understandably relieved to see the company fighting back, but we really don't know much more than we did 24 hours ago. Unless you have boots on the ground in China to inspect EHang's facilities and pour through its financials, it's hard to really know at this point who is correct.

Even after the bounce Wednesday morning, the stock is still down nearly 50% for the week, but is up 200% year to date. And the company is still valued by the market at more than $3 billion.

This is an early stage, high-risk company even if you assume Wolfpack's allegations are false. Given the risks involved and the new uncertainty created by the short report, it feels like a dangerous time to go "bargain hunting," even after EHang's dramatic decline a day prior.

This article represents the opinion of the writer(s), who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

EHang Holdings Limited Stock Quote
EHang Holdings Limited
EH
$7.85 (-0.38%) $0.03

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