eVTOL Production And Certification Will Unlock Global Markets

Key Takeaways

• Production capacity expansion and strategic collaborations promise enhanced performance, increased net margins, and diversified revenue streams.
  
• Progress in regulatory certification and international market expansion positions EHang to capture new market share and increase earnings.
  
• Dependency on Chinese regulation and high R&D costs could strain margins and delay breakeven amidst global expansion challenges.

Catalysts

Operates as an urban air mobility (UAM) technology platform company in the People’s Republic of China, East Asia, West Asia, North America, South America, West Africa, and Europe.

• EHang expects to see significant revenue growth by expanding production capacity. The Yunfu Phase 2 expansion is projected to double production capacity to 1,000 units annually by 2025, meeting strong demand and potentially boosting revenue.
  
• The company is making progress in obtaining operator certificates from the Civil Aviation Administration of China, a key milestone that will facilitate commercial eVTOL operations and open new revenue streams, significantly impacting earnings.
  
• Strategic collaborations with companies like INX, Greater Bay Technology, and Empower for advanced battery technology and new eVTOL models like the VT-35 promise to enhance product performance and reliability, potentially improving net margins.
  
• Infrastructure and network expansion through partnerships, particularly to develop more than 100 urban air mobility and tourism terminals, indicates a broadened operational scope, which is expected to diversify and increase revenue streams.
  
• International expansion into new markets like Thailand, Japan, and Spain, and pursuing airworthiness certification for global operations, positions EHang to capture significant new market share and increase earnings.

EHang Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EHang Holdings's revenue will grow by 57.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -50.4% today to 16.3% in 3 years time.
• Analysts expect earnings to reach CN¥289.0 million (and earnings per share of CN¥3.28) by about April 2028, up from CN¥-229.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥386 million in earnings, and the most bearish expecting CN¥197 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 75.5x on those 2028 earnings, up from -35.5x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 30.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

EHang Holdings Future Earnings Per Share Growth

Risks

• The company's focus on expanding production capacity involves significant capital expenditure and operational costs, potentially impacting net margins and delaying breakeven on a GAAP basis.
  
• Heavy reliance on the Chinese government's support and regulation for the low-altitude economy presents a risk, as policy changes or slow regulatory processes could affect revenue growth.
  
• High research and development costs, especially in new technologies such as AI and next-generation batteries, could pressure operating expenses and impact overall earnings.
  
• Global expansion and regulatory compliance in various countries add complexity and cost, which may affect international revenue potential and net margins negatively.
  
• Potential shifts in manufacturing and order-based production strategies could lead to inefficiencies or underutilization, adversely affecting operational margins and profits.

Valuation

• The analysts have a consensus price target of $27.705 for EHang Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.98, and the most bearish reporting a price target of just $19.96.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥1.8 billion, earnings will come to CN¥289.0 million, and it would be trading on a PE ratio of 75.5x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $15.51, the analyst price target of $27.7 is 44.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.