NEW AERO: QUICK TAKE III

Updated: Sep 3

In the third edition of New Aero: Quick Take we look at Chinese eVTOL and drone developer eHang's Q2 earnings call, British eVTOL developer Vertical Aerospace's new fixed-wing vehicle the VA-1X and Chinese computer vision specialist Clobotics' acquisition of Danish drone inspection specialists Finetune.


THE STORY: eHang reported their Q2 results this week and the questions on the investor call revealed some interesting glimpses into how their (loss-making) eVTOL empire is growing


WHY IT'S IMPORTANT: As the only publicly listed company specialising in electric air mobility and logistics eHang's quarterly reports and earnings calls give fascinating insight into how the company is driving short-term revenue, sales volumes of their passenger-grade autonomous vehicles, how they're adapting their global expansion strategy and the support they're receiving in their home market of China.


A look inside eHang every few months is not only a useful peek at a microcosm of the nascent electric aerial mobility industry, but a fascinating glimpse at the workings of a Nasdaq-listed, homegrown Chinese company that's pursuing industrial interests Beijing certainly considers to be strategic.


eHang reported quarterly revenues of c. $5m USD, up 62.7% vs 2019, but still booked a $2.8m net loss for the quarter having spent $2.5m on R&D. They continue to forecast 200% revenue growth for 2020, despite impacts on the business of the coronavirus pandemic and 'geopolitics' (read: US-China trade war). A full breakdown of the financials can be found here.


They shipped 16 units of their flagship eHang 216 Autonomous Aerial Vehicle (AAV) - all in China (vs 14 units in Q2 '19) and 'air mobility solutions' constituted 62.7% of total revenues. Gross profit was c. $3m USD (+60% vs '19) with a gross margin of 57.6%. The company reports having RMB 258m / $37.5m USD in cash, equivalents / short-term investments to hand.


A raft of announcements have come from the company in recent months but some interesting further tidbits of information came out in response to analyst questions on the earnings call (transcript here), notably:

  • The company will put more efforts into the Chinese market and is seeing some traction in Japan (having sold an AAV to a private company for sightseeing flights) and South Korea (having sold to a local government customer who are planning demo flights in multiple cities)

  • After Asia their focus will now be firmly on Europe for expansion

  • A new product with a flight range of over 100km is anticipated soon and will be a two-seater though it's unclear if it'll be a modified 216 or an entirely new vehicle architecture

  • The company have now deployed three smart city command & control centres in China, in Shaoguan, Lianyungang and Hezhou

  • The company appointed Mr Dongming Wu, CEO of DHL Express China, as an independent Director

  • eHang are focusing on their drone light show business in Europe this year, but also plan 216 AAV demonstration flights in Rotterdam (where the port authority are interested in harbour to vessel crew transfers which are expensive and slow at present) and an unnamed French city as well as in Linz, Austria

  • New use cases for the 216 are largely coming as a result of customer feedback following commercial deliveries

  • eHang's partner for trial flights in Canada is United Therapeutics - who are also bank-rolling their competitor Beta Technologies - the use case here is the same, for emergency medical organ transport

  • The company'r partnership with DHL encompasses designing an end-to-end drone-in-a-box solution, incorporating charging and parcel sorting, not just design of a drone




The Chinese State is proving a good customer


eHang are in dialogue with the Ministry of Emergency Management of the People's Republic of China and provincial governments in Guandong and Hainan with regards to the firefighting 216F variant of their AAV and seem bullish on prospects for domestic sales of this variant.


Similarly the executive team outline that the deal with the Lingnan Group, with whom they announced a partnership to work on a UAM themed hotel in May, is perhaps a lot more than it might first appear to Western eyes at least.


It was noted that the Shenzhen-listed tourism platform company is in fact just a small part of a quite large State Owned Enterprise (SOE) - Lingnan Group being a platform company of the Guangzhou government. This conglomerate has interests in tourism, hotels, food processing, and restaurants. eHang's framework agreement with them spans:


  • Aerial sightseeing, transportation and aerial media light shows as the Lingnan Garden hotel, with an option to expand all these services to two further hotels if successful

  • Drone light shows at tourism spots and amusement parks in addition to further hotels

  • Logistics operations in service of their food processing and restaurant assets in the longer term, eg. food delivery

Western governments looking to compete for strategic investments in the Advanced Aerial Mobility / drone logistics / emergency response markets should all take note of just how supportive the Chinese State can be in offering contracts to the company's they want to see win - the financial of their huge domestic market will be hard to compete with.




THE STORY: Chinese computer vision specialists Clobotics acquire Denmark's Finetune - specialists in AI-assisted drone inspection of wind turbine blades, and turbine digital twins


WHY IT'S IMPORTANT: Founded in 2015 by a former Microsoft and eHang executive George Yan Clobotics acquisition of Finetune puts them in a strong position to dominate automated wind turbine inspection globally. With a European HQ recently established in Denmark, birthplace of the modern wind industry, bases in the world's two largest onshore wind markets (the US and China) and a foothold into the huge and growing offshore market - hoovering up top Danish industry talent through acquisition seems an excellent strategy.


Drone inspection of wind turbines is already a $43 billion market in 2020 and forecast to grow at a CAGR of over 12% to almost $100 billion by 2027.


The company is backed by at least $53m in funding, from GGV Capital, Wangsu Science & Technology, KTB Network, Infotech Ventures and the Capital Development Investment Fund and have made a concerted push into wind farm O&M in the last 18 months:


  • In Feb '19 they announced a global strategic partnership with GEV Wind Power, one of the largest wind O&M companies in Europe - servicing 130 wind farms in 13 countries in Europe and 17 wind farms in North America - this gained Clobotics access to top turbine manufactures including Siemens Gamesa, GE and Nordex

  • In April 2020 they acquired Atsite based in Esbjerg - heart of the Danish offshore wind industry which became Clobotics A/S and will serve as the company's European HQ - this acquisition got Clobotics access to one of the best connected visual inspection companies in the European wind industry - and meant their Windspector cloud-based inspection and autonomous drone solution could be deployed to new customers

  • This month, August 2020, saw them acquire Finetune ApS - also in Denmark - this purchase brings specific technical competence into the fold relating to automated defect evaluation of wind turbine blade surfaces.


Acquiring Danish SMEs in the manner Clobotics have is savvy - the sorts of supply chain relationships they have within Europe's wind industry are extremely valuable - the Danes are notoriously protective of their country's leadership in the industry and winning supply chain contracts is difficult, slow and requires trust to first be established. Expensive problems with low-quality Chinese steel in turbine foundations on early offshore projects has made the Danish industry (understandably) wary of Chinese suppliers who over promise and under deliver.

Drone inspection of wind turbines is really a bright light in the growing commercial drone inspection market. There's a concrete business case for automating turbine inspection. A manual inspection can mean powering a multi-million dollar asset down for 6-8 hours and require specially trained technicians to climb across the structures whilst hanging from ropes. The industry even employed robots to crawl over turbines - drones can provide better results when flown manually - but the real step change is in computer vision enabled automation - reducing the need even for qualified drone pilots.


automated drone solution can see aircraft take-off, automatically find and survey a turbine, (irrespective of make, model and blade position), survey it without ever stopping, sending imagery to the cloud and land again - in 15-30 minutes. That's a huge saving when you factor in the price of electricity that turbine is producing when it spins.


And as turbines get bigger and move further offshore - the case for automated inspection only gets better, and the opportunity cost of powering turbines down unnecessarily for hours becomes enormous. What's more Clobotics and Finetune are building digital twins and amassing huge amounts of maintenance data that allow predictive and preventative maintenance on assets whose value can easily run into several billion USD for even a single phase of a typical offshore wind farm today.


Both onshore and offshore we see a positive future for Clobotics wind turbine inspection business - and as a platform play (that we expect is / could easily be drone hardware mfctr agnostic) - it might be one of the few Chinese tech companies for whom the current US-China 'geopolitics' are not a concern. A relief as the US market has a huge fleet of ageing onshore turbines and an offshore industry that's only just getting started.


THE STORY: The UK's only serious contender in the passenger-carrying eVTOL space - Vertical Aerospace - unveiled the design of their 4-passenger, fixed-wing aircraft; the VA-1X


WHY IT'S IMPORTANT: We covered the company in-depth in New Aero: Quick Take II here and this piece from January provides some useful context - but it's worth taking a look at the aircraft itself now that the design has officially been unveiled. The key specs are:


  • There'll be a pilot and room for four passengers

  • Range is 100 miles at a cruising speed of 150mph

  • The company will pursue certification of the aircraft with EASA, despite Brexit concerns

  • It's claimed the VA-1X will be 30x quieter than "an equivalent helicopter"

  • Cockpit renders suggest a single side stick for control and a physically separated cabin and cockpit

We had anticipated that a physical prototype might be unveiled at this time, but the company has just released renders at this stage and notes that "build will begin shortly" with commercial flights anticipated in 2024.


LINKS...

  • Osinto Twitter
  • Osinto LinkedIn
  • Osinto YouTube
  • Osinto Instagram
Osinto Ltd | Company No. 11952126 | © All rights reserved
Kemp House, 160 City Road, London, United Kingdom, EC1V 2NX.