What happened

Shares of flying taxi manufacturer EHang Holdings (EH -9.05%) were on the move on Wednesday, up as much as 18% and down as much as 9% at various times during the day. The stock was down about 5% heading into the final trading hour of the day.

So what

EHang investors have been on a wild ride in 2021. The stock was up as much as 450% for the year in early February before falling back some following a critical report from Wolfpack Research calling the company "an elaborate stock promotion."

EH Chart

EH data by YCharts

The company is developing an electric flying air taxi capable of vertical takeoffs and landings, as well as a number of drones and autonomous software. EHang quickly fired back with a defense against Wolfpack's charges, and the stock is still a double for the year, but the report if nothing else worked to slow the seemingly unstoppable rise of earlier in the year.

In recent weeks EHang has traded in tandem with other high-growth early-stage companies, rising on days when those companies were doing well and falling on days when markets were more skeptical. That was true on Wednesday as well, with the shares taking off early in the trading session along with a lot of other high-interest stocks like Tesla and Virgin Galactic Holdings but losing steam as the day went on.

Illustration of a air taxi in flight.

Image source: Getty Images.

Now what

There is a lot of volatility in EHang shares right now, and no reason to believe that will change any time soon. Even assuming there is nothing to the Wolfpack report, it is hard to make the case for the company based on fundamentals: EHang right now has very little revenue, but is valued by the market at more than $2 billion.

The market is valuing the company on its potential, not on its current business. There is nothing wrong with that, but investors need to remember that a lot can go wrong along the way. At best I'd advise limiting this stock to a small part of a diversified portfolio, with the understanding that although it could go up from here, there is also a lot of room for it to fall.

For most, this is a story best watched from the sidelines for now.