Regulatory delays continue to weigh on deliveries as EHang turns to overseas and non-passenger businesses to broaden its commercialization pathways

Overview

The report analyzes EHang's strategic adjustments amid tighter regulatory scrutiny and delays in domestic commercialization. Morgan Stanley believes near-term deliveries and revenue will remain under pressure and consensus EPS expectations over the next 12 months may be revised down slightly. However, given the resilience of the company's high gross margin and the potential for overseas and non-passenger businesses to provide new commercialization pathways, it maintains its Overweight rating and US$7.70 price target.

Core views

The 2Q26 results indicate that delivery growth has not yet translated into improved profitability. EHang recorded a net loss of RMB128 million, broadly flat QoQ, as revenue growth was offset by higher operating expenses. Gross margin remained resilient at 61.2%, only slightly below 61.5% in 2Q25 and 62.5% in 1Q26. Morgan Stanley described the financial results as a "modest miss" relative to consensus, but viewed the impact on its existing investment thesis as "unchanged," while expecting consensus EPS over the next 12 months to be revised down slightly. Commercialization delays remain the key operating constraint. The company delivered 35 EH216-series products and 1 VT35 in 2Q26, compared with 52 units in 2Q25. Due to delayed commercialization and tighter regulatory scrutiny, quarterly revenue declined 31% YoY to RMB78 million, with passenger-carrying aerial vehicles contributing 92%. This indicates that current revenue remains highly dependent on passenger products, while the pace of regulatory approvals directly affects delivery fulfillment and revenue recognition. Given uncertainty around the domestic commercialization timeline, management withdrew its previous RMB600 million revenue guidance. The company's response is to control expenses while expanding its coverage of non-passenger aerial vehicles and overseas markets, thereby reducing its dependence on the approval schedule for a single domestic passenger business. Thailand is the clearest near-term overseas milestone: EHang aims to obtain full commercial operating approval by year-end, after which it can launch paid services. The Thailand license is therefore not only an indicator of regulatory progress but also a key prerequisite for overseas revenue to move from the trial or demonstration stage into paid operations. Morgan Stanley's model shows that earnings improvement remains weighted toward later years. Net revenue is forecast at RMB418 million, RMB397 million, RMB1.009 billion, and RMB1.634 billion in FY2025, FY2026, FY2027, and FY2028, respectively; EPS is forecast at RMB-3.77, RMB-3.81, RMB-0.25, and RMB2.04, respectively, implying that the model expects EPS to turn positive only in 2028. P/BV over the same period is 6.3x, 3.2x, 3.3x, and 2.8x, respectively; 2028 P/E is 17.1x and EV/EBITDA is 20.3x. This forecast trajectory depends on the gradual scaling of commercialization and improvement in cost absorption rather than a rapid near-term quarterly earnings turnaround. The price target is derived using a DCF approach to reflect EHang's long-term growth potential. Key assumptions include a 15.1% WACC, comprising an 8% equity risk premium, a 5% risk-free rate, a beta of 1.8, a 5.2% after-tax cost of debt, and a 30% target debt ratio; the perpetual growth rate is 2.5%. Morgan Stanley assigns an Overweight rating, an In-Line industry view, and a US$7.70 price target, based on the US$4.83 share price as of August 25, 2026, although the report does not explicitly state the expected upside. Favorable valuation scenarios include the company's successful transition from an aerial vehicle manufacturer into a UAM operator, resulting in higher long-term growth; faster-than-expected market acceptance of eVTOL; and increased government projects driving EH216-series shipments. Conversely, if the transition to a UAM operator is unsuccessful, production issues delay or cancel EH216-S deliveries, or negative publicity slows market acceptance, revenue growth and the long-term cash flow trajectory underpinning the DCF could fall short of expectations.

Analysis framework

The report first compares the 2Q26 results with the prior-year period, the previous quarter, and consensus expectations, breaking down the effects of deliveries, revenue, product mix, gross margin, and operating expenses on losses. It then assesses the impact of regulatory scrutiny on the domestic commercialization timeline and revenue guidance and analyzes the company's response through expansion into non-passenger and overseas businesses. Finally, Morgan Stanley uses ModelWare to forecast the revenue and earnings trajectory and a DCF methodology to incorporate the long-term transition into a UAM operator, cost of capital, and perpetual growth assumptions into the price target.

Methodology notes

• Valuation methodologyDCF

  Discounted cash flow valuation

  This method discounts expected future cash flows to their present value using the cost of capital. The report uses it to capture EHang's long-term growth potential and applies a 15.1% WACC and a 2.5% perpetual growth rate to derive the base-case valuation.

• Industry analysis frameworkVolume-price decomposition

  Decomposition of delivery volume, product mix, and revenue changes

  By comparing the number of aerial vehicles delivered, the revenue contribution from passenger products, and changes in total revenue, the report explains how regulatory-driven commercialization delays flow through to revenue, while using gross margin and operating expenses to explain the net loss.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• EHang Holdings Ltd (EH.US)

  Domestic regulatory delays are weighing on deliveries and revenue, and the company is broadening its commercialization pathways through non-passenger products, overseas markets, and a transition into a UAM operator.

  Strengths

  The 2Q26 gross margin remained at 61.2%, and the company has the EH216 series, VT35, and potential opportunities for paid overseas operations.

  Weaknesses

  2Q26 revenue declined 31% YoY, the net loss was RMB128 million, revenue is highly dependent on passenger-carrying aerial vehicles, and the previous RMB600 million revenue guidance has been withdrawn.

  Comparison

  EHang delivered 35 EH216-series products and 1 VT35 in 2Q26, below the 52 units delivered in 2Q25; gross margin declined to 61.2% from 61.5% in 2Q25 and 62.5% in 1Q26.

  Risks

  Failure of the transition into a UAM operator, production issues causing delays or cancellations of EH216-S deliveries, and negative publicity slowing market acceptance.

Key data

• 2Q26 net lossRMB128 millionBroadly flat QoQ, as higher operating expenses offset revenue growth
• 2Q26 gross margin61.2%61.5% in 2Q25 and 62.5% in 1Q26
• 2Q26 deliveries35 EH216-series products and 1 VT35Total deliveries were 52 units in 2Q25
• 2Q26 revenueRMB78 millionDown 31% YoY
• Passenger-carrying aerial vehicle revenue contribution92%Share of total 2Q26 revenue
• Withdrawn revenue guidanceRMB600 millionWithdrawn due to uncertainty around the domestic commercialization timeline and regulatory scrutiny
• Thailand commercial operations targetObtain full approval by the end of 2026Paid services can be launched after approval
• Net revenue forecast2025/2026e/2027e/2028e: RMB418 million/397 million/1.009 billion/1.634 billionMorgan Stanley ModelWare forecast
• EPS forecast2025/2026e/2027e/2028e: RMB-3.77/-3.81/-0.25/2.04The model expects EPS to turn positive in 2028
• 2028 valuation multiplesP/E 17.1x; EV/EBITDA 20.3x; P/BV 2.8xBased on Morgan Stanley's FY2028 forecasts
• Key DCF assumptionsWACC 15.1%; perpetual growth rate 2.5%WACC assumptions include an 8% equity risk premium, a 5% risk-free rate, a 1.8 beta, a 5.2% after-tax cost of debt, and a 30% target debt ratio
• Rating and price targetOverweight; US$7.70Industry view is In-Line; share price was US$4.83 on August 25, 2026

Impact & implications

The report believes regulatory approvals will continue to determine the pace at which EHang realizes near-term deliveries and revenue, while gross-margin resilience is not yet sufficient to offset losses caused by high operating expenses and insufficient scale. The withdrawal of revenue guidance reflects reduced visibility into the domestic commercialization timeline, while expansion into non-passenger businesses and overseas markets is intended to establish alternative growth channels. Whether the medium- to long-term valuation can be sustained depends on the launch of paid operations in markets such as Thailand, increased EH216-series shipments, greater eVTOL acceptance, and the execution of the company's transition into a UAM operator.

Risks

• The company's business transition into a UAM operator may not succeed.
• Production issues could delay or cancel EH216-S deliveries.
• Negative publicity could slow market acceptance of eVTOL.
• Tighter domestic regulatory scrutiny and uncertainty around the commercialization timeline may continue to weigh on deliveries and revenue.

What to watch

• Monitor whether the company can obtain full commercial operating approval in Thailand and launch paid services by the end of 2026.
• Monitor progress in domestic commercialization approvals and changes in regulatory scrutiny.
• Monitor whether the non-passenger and overseas businesses can reduce dependence on domestic passenger-carrying aerial vehicle revenue.
• Monitor whether growth in government projects drives EH216-series shipments.
• Monitor operating expense control and the extent of modest downward revisions to consensus EPS over the next 12 months.
• Monitor whether the company can achieve positive EPS in 2028 in line with the model trajectory.