Entities

VIE’s Subsidiaries

Date of

incorporation

establishment

Place of

incorporation

establishment

Percentage of

direct or indirect

ownership

Principal activities

Direct

Indirect

Guangdong EHang General Aviation Co., Ltd. (“EHang Aviation”)

March 11, 2021

PRC

—

100

%(a)

Operational flight services

(a)

EHang GZ and EHang Intelligent hold 51% and 49% equity interests in EHang Aviation, respectively.

Summary of the VIE contractual arrangements (the “VIE Contractual Agreements”)

The Group conducts all of its business in China through its subsidiaries and the VIEs in the PRC. The Company’s subsidiary EHang Intelligent, or the WFOE, has entered into contractual arrangements with the VIE and its shareholder described below, which are referred to as the VIE Contractual Agreements. As of December 31, 2019, the equity interests of the VIE were legally held by Mr. Huazhi Hu and Mr. Derrick Yifang Xiong (the “Former Shareholders”). For the year ended December 31, 2020, the Former Shareholders transferred their equity interests to Mr. Shuai Feng and Mr. Weixian Xia, both are the Group’s employees (the “Nominee Shareholders”). The Nominee Shareholders then signed the Contractual Agreements with terms essentially the same as the ones signed before. Through the Contractual Agreements, the Nominee Shareholders of the VIE effectively assigned all of their voting rights underlying their equity interests in the VIE to the WFOE, which is a wholly-owned entity by the Company, who further assigned the voting rights underlying their equity interests in the VIE to the Company. Therefore, the Company has the power to direct the activities of the VIE that most significantly impact their economic performance. The Company also has the right to receive economic benefits via the WFOE, and the obligation to absorb losses of the VIE, that potentially could be significant to the VIE. Through the VIE Contractual Agreements, the Company is considered the primary beneficiary of the VIEs for accounting purposes only and thus consolidates each of these entities under

ASC810-10,

Consolidation: Overall

The following is a summary of the Contractual Agreements among the Former Shareholders, the VIE and the WFOE, and then amended in 2020 to the Nominee Shareholders:

Loan Agreement

The WFOE has granted interest-free loans with an aggregate amount of RMB60,000 to the Nominee Shareholders of the VIE for the sole purpose of providing funds necessary for the capital injection of the VIE. The loans are repayable by such Nominee Shareholder through a transfer of their equity interests in the VIE to the WFOE, in proportion to the amount of the loans to be repaid.

Power of Attorney and Shareholders Voting Proxy

Pursuant to the Power of Attorney and Shareholders Voting Proxy entered into between the Nominee Shareholders, the VIE and the WFOE, the Nominee Shareholders authorized the WFOE to act on behalf of the Nominee Shareholders as exclusive agent and attorney with respect to all matters concerning the VIE’s equity interests, including but not limited to: (1) attend shareholders’ meetings of the VIE; (2) exercise all the shareholders’ rights, including voting rights; and (3) designate and appoint the senior management members of the VIE. The proxy is irrevocable and continuously valid from the date of execution. The WFOE is entitled to

re-authorize

or assign its rights related to the equity interest to any other person or entity at its own discretion and without giving prior notice to the Nominee Shareholders or obtaining their consents. In 2019, the WFOE reassigned its rights under the Power of Attorney and Shareholders Voting Proxy to the Company, pursuant to the Commitment Letter below.

Exclusive Option Agreements

Pursuant to the Exclusive Option Agreements entered amongst the Nominee Shareholders, the VIE and WFOE, the Nominee Shareholders granted to WFOE or their designees an irrevocable and exclusive right to purchase all or part of the equity interests held by the Nominee Shareholders in the VIE at the WFOE’s sole discretion, to the extent permitted under the PRC laws, at an amount equal to the minimum consideration permitted under the applicable PRC law and administrative regulations. Any proceeds received by the Nominee Shareholders from the exercise of the options shall be remitted to the WFOE or its designated party, to the extent permitted under PRC laws. In addition, the VIE and the Nominee Shareholders have agreed that without prior written consent of the WFOE, they will not create any pledge or encumbrance on their equity interests in the VIE, or transfer or otherwise dispose of their equity interests in the VIE. The term of the agreement remains effective as long as each Nominee Shareholder remains a shareholder of the VIE. The WFOE may terminate the agreement at its sole discretion, whereas under no circumstances may the VIE or the Nominee Shareholders terminate the agreement.

Exclusive Consulting and Service Agreement

Pursuant to the Exclusive Consulting and Service Agreement between the WFOE and the VIE, the WFOE has the exclusive right to provide services to the VIE related to the VIE’s and the VIE’s subsidiaries’ business, including but not limited to the development, manufacturing and sales of intelligent aerial vehicles. In return, the VIE agrees to pay a service fee equal to 100% of the consolidated net profits of the VIE after the VIE turns cumulative profitable and after certain expenses. The WFOE has sole discretion in determining the service fee charged to the VIE under this agreement. Without the WFOE’s prior written consent, the VIE shall not, directly and indirectly, obtain the same or similar services as provided under this agreement from any third party. The WFOE will have the exclusive ownership of all intellectual property rights developed by performance of this agreement. The Exclusive Consulting and Service Agreement is valid for 10 years and renewable at the WFOE’s option. This agreement can be terminated by the WFOE with 30 days’ notice at any time but cannot be terminated by the VIE unless the WFOE is found to be in gross negligence.

Share Pledge Agreements

Pursuant to the Share Pledge Agreements entered amongst the WFOE and the Nominee Shareholders, the Nominee Shareholders pledged all of their equity interests in the VIE to the WFOE in favor of the WFOE to secure the VIE and their obligations under the various contractual agreements, including the Exclusive Consulting and Service Agreements and Exclusive Option Agreements described above. The WFOE shall have the right to collect dividends generated by the pledged equity interests during the term of the pledge. If the Nominee Shareholders breach their respective contractual obligations under the Share Pledge Agreements, the WFOE, as pledgee, will be entitled to rights, including the right to dispose of the pledged equity interests entirely or partially. The Nominee Shareholders of the VIE agree not to create any encumbrance on or otherwise transfer or dispose of their respective equity interests in the VIE, without the prior consent of the WFOE. The Share Pledge Agreements will remain effective until all the contractual obligations have been satisfied in full under all the agreements mentioned above. In March 2021, the Company has completed the registration of the share pledge with the relevant office of Administration for the Industry and Commerce in accordance with the PRC Property Rights Law.

Commitment Letter

Pursuant to the Commitment Letter, the WFOE irrevocably and unconditionally commits to execute its rights and obligations under the Power of Attorney and Shareholders Voting Proxy under the instruction of the Company. In addition, the Company is obligated and undertakes to provide unlimited financial support to the VIE, to the extent permissible under applicable PRC laws and regulations.

As of December 31, 2020, a judicial freeze was placed on the equity interests of the VIE in connection with an arbitration filed by a third party against Mr. Huazhi Hu, one of the Former Shareholders of the VIE. The arbitration arose from a financial dispute between the third party and Mr. Huazhi Hu, and was unrelated to the Group. The third party did not have any claim against the VIE. The VIE was named as a party in the arbitration only because the third party regarded equity interests of the VIE as potential assets of Mr. Huazhi Hu. The third party and Mr. Huazhi Hu reached a settlement and as a result, in March 2021, the third party filed a petition with the court and the judicial freeze on the VIE’s equity interests has been released since then.

Based on the opinion of the Company’s PRC legal counsel, (i) the ownership structure of the WFOE and the VIEs are in compliance with applicable PRC laws and regulations, (ii) such Contractual Agreements constitute valid, legal and binding obligations enforceable against each party of such agreements in accordance with the terms of each agreement, and will not result in any violation of PRC laws or regulations currently in effect.

However, uncertainties in the PRC legal system could cause the relevant regulatory authorities to find the current Contractual Agreements and businesses to be in violation of any existing or future PRC laws or regulations. If the Company, the WFOE or any of their current or future VIE are found in violation of any existing or future laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, which may include, but not limited to, revocation of business and operating licenses, being required to discontinue or restrict its business operations, restriction of the Group’s right to collect revenues, being required to restructure its operations, imposition of additional conditions or requirements with which the Group may not be able to comply, or other regulatory or enforcement actions against the Group that could be harmful to its business. The imposition of any of these or other penalties may result in a material and adverse effect on the Group’s ability to conduct its business. In addition, if the imposition of any of these penalties causes the Company to lose the rights to direct the activities of the VIE or the right to receive their economic benefits, the Company would no longer be able to consolidate the VIE.

The following financial statement balances and amounts of the Group’s VIEs were included in the accompanying consolidated financial statements:


	As of December 31,
	2021		2022
	RMB		RMB		US$
ASSETS
Cash and cash equivalents		8,014		11,404		1,653
Accounts receivable, net		10,959		202		29
Inventories		839		837		121
Prepayments and other current assets		4,302		3,653		530
Amounts due from the Company and its subsidiaries		25,774		6,911		1,002
Property and equipment, net		2,032		1,273		185
Right-of-use assets, net		—		799		116
Intangible assets, net		77		229		33
Other non-current assets		97		39		6

Total assets		52,094		25,347		3,675

LIABILITIES
Accounts payable		3,025		3,100		449
Contract liabilities		1,677		2,027		294
Current portion of long-term bank loans		1,000		5,154		747
Accrued expenses and current liabilities		18,053		19,712		2,858
Amounts due to the Company and its subsidiaries		45,991		55,451		8,040
Long-term bank loans		9,000		3,846		558
Unrecognized tax benefit		588		588		85
Lease liabilities		—		800		116

Total liabilities		79,334		90,678		13,147


	For the year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB			US$
Revenues		68,372			28,399			10,147			1,471
- Third-party revenue		35,280			230			6			1
- Inter-company revenue		33,092			28,169			10,141			1,470
Net profit (loss)		25,755			(8,534	)		(38,091	)		(5,523	)
Net cash (used in) provided by operating activities		(5,118	)		(3,482	)		4,627			671
Net cash used in investing activities		(107	)		(878	)		(237	)		(34	)
Net cash provided by (used in) financing activities		—			5,000			(1,000	)		(145	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(5,225	)		640			3,390			492

Other than the amounts due to the Company and its subsidiaries (which are eliminated upon consolidation), all remaining liabilities of the VIE are without recourse to the primary beneficiary. The Company did not provide or intend to provide financial or other supports that are not previously contractually required to the VIEs during the years presented.

The revenue-producing assets that are held by the VIEs comprise mainly of permits, domain names, IP rights, operating licenses, intangible assets and fixed assets. The VIEs contributed an aggregate of 19.6%, 0.4% and 0.01% of the Group’s consolidated revenues for the years ended December 31, 2020, 2021 and 2022, respectively, after elimination of inter-company transactions. The VIEs contributed RMB507, RMB36,371 and RMB47,683 (US$6,913)

of the Group’s consolidated net loss for the years ended December 31, 2020, 2021 and 2022, respectively, after elimination of inter-company transactions. There are no consolidated VIE’s assets that are pledged or collateralized for the VIE’s obligations which can only be used to settle the VIE’s obligations, except for the registered capital and the statutory reserves. Relevant PRC laws and regulations restrict the VIE from transferring a portion of its net assets, equivalent to the balance of its statutory reserves and its share capital, to the Company in the form of loans and advances or cash dividends (Note 21). Creditors of the VIE do not have recourse to the general credit of the Company for any of the liabilities of the VIE. There were no other pledges or collateralization of the VIE’s assets.

(c)

Liquidity and Going Concern

The Group has been incurring losses from operations since inception. The Group incurred net losses of RMB92,041, RMB313,896 and RMB329,331 (US$47,748) for the years ended December 31, 2020, 2021 and 2022, respectively. Accumulated deficit amounted to RMB1,122,153 and RMB1,450,374 (US$210,284

) as of December 31, 2021 and 2022, respectively. Net cash used in operating activities was RMB

151,696, RMB121,629 and RMB173,458 (US$25,148) for the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2021 and 2022, the Group’s balance of cash and cash equivalents was RMB 246,863 and RMB249,310 (US$36,147), respectively. Up to the date of this report, the Group had unused loan facilities of RMB10,000 with expiration date of February 9, 2024.

The Group’s ability to continue as a going concern is currently largely dependent on when the Group will obtain the type certificate of its EH216-S in the near term to launch fully commercial sales of its EH216-S autonomous aerial vehicle, and raising additional funds through debt financings or equity offerings.

The Group’s management expect to obtain the type certificate in the near future as the Group has completed majority of the compliance tests of the EH216-S as of the date of this report. However, there is uncertainty as to when the Group will obtain the type certificate of its EH216-S in the near term, which may materially and adversely affect the execution of management’s business plan and the Company’s future liquidity.

If the Group would be unsuccessful in obtaining the type certificate of EH216-S in a timely manner in the near term, or raising sufficient funds, the Group’s management will continue to tighten its cash management, further undertake significant cost-cutting measures, adjust the pace of its R&D projects

, expand revenues from smart city management solutions and aerial media solutions

and utilize the unused loan facilities of RMB 10,000. This will help maintain the liquidity of the Group within the twelve-month period from the issuance date of these consolidated financial statements and provide additional time for the Group to obtain the type certificate of its EH216-S and raise sufficient funds.

Management has concluded, after giving consideration to its plans as noted above and existing balance of cash and cash equivalents as of December 31, 2022, that the Group has sufficient funds for sustainable operations and it will be able to meet its payment obligations from operations and debt related commitments for the next twelve months from the issuance of the consolidated financial statements. Accordingly the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities during the normal course of operations.