GGV Capital-backed Chinese drone maker EHang files for U.S. IPO

Chinese drone maker EHang Holdings Limited has filed for an initial public offering (IPO) in the United States on Thursday. EHang put the listing size as $100 million – a placeholder likely to change – in a prospectus filed with the U.S. Securities and Exchange Commission (SEC). The company did not disclose the pricing terms, but a Bloomberg report in late September citing sources said that the firm planned to offload a 10-15 per cent stake to raise as much as $200 million. EHang filed the prospectus amid an ongoing trade war between the United States and China that has brought technology companies in the crossfire of the deteriorating relationship between the two countries. EHang’s Chinese peer, SZ DJI Technology – the world’s largest producer of consumer drones – drew unfavourable attention from Washington earlier this year over security concerns that its flying machines could send surveillance data back to China. This ignited a proposed ban for all American federal entities from purchasing and using DJI products. Despite the Sino-US friction, the global drone market was valued at $13.20 billion in 2018 and is projected to grow at a compound annual growth rate (CAGR) of 40.7 per cent to hit $144.38 billion by 2025, according to India-based consulting firm Adroit Market Research. EHang, founded in 2014 and based in southern China’s Guangzhou city, operates as an autonomous aerial vehicle (AAV) technology platform that develops, manufactures and sells passenger drones, and their supporting systems and infrastructure. It offers passenger transportation, logistics, smart city management and aerial media solutions for recreational and commercial use in China and worldwide. The five-year-old company first made headlines in January 2016 when it unveiled a single-seat passenger drone model, “EHang 184,” which it said would retail at up to $300,000. In January 2019, the company received the go-ahead from the Chinese aviation regulators to carry out pilot air taxi services. It is planning an initial cross-river route in Guangzhou using a dual-seat drone model named “EHang 216,” a unit of which was delivered in March 2018 to a customer for testing, training and demonstration purposes. Air mobility solutions are generating an increasingly large proportion of EHang’s revenues since 2019, accounting for over 73.7 per cent with revenues of 23.9 million yuan ($3.5 million) in the first half of this year – a striking difference compared to 2018 when EHang earned more than 95 per cent of revenues from smart city management and aerial media solutions. The company recorded a net loss of 37.6 million yuan ($5.5 million) on revenues of 32.4 million yuan ($4.7 million) in the first six months of 2019, suffering from a 15.6 per cent decrease on revenues and a 42.1 per cent increase on net losses compared to the same period in 2018. EHang has raised at least $52 million across three funding rounds. Previously, the company secured $42 million in a Series B round led by Shanghai-based fund manager GP Capital in August 2015. GGV Capital, ZhenFund, Beijing-based angel fund Lebox Capital, Chinese venture capital firm Oriental Fortune Capital (OFC), and Chinese investment fund PreAngel also poured money into the previous round. Hu Huazhi, founder, chairman and CEO of EHang, is the largest shareholder with a 45.6 per cent stake. GGV Capital, a Chinese venture capital firm investing across Asia and the United States, came second with a 10.8 per cent stake, while Sequoia-backed Chinese seed fund ZhenFund has a 7.6 per cent stake in the company, according to its prospectus. EHang plans to use the proceeds for the research and development of products, services and technologies, sales and marketing, including the development of a global sales channel, and expanding its production capacity. The company will also use the money to develop its urban air mobility solutions, such as passenger air mobility services and urban air logistics services, as well as pursue potential strategic investments and acquisitions. Morgan Stanley and Credit Suisse are the joint bookrunners for the IPO. EHang plans to float its shares on the Nasdaq Global Market under the ticker “EH.”