Ehang on the edge of the cliff: Layoffs are just a superficial phenomenon, the company is entering the countdown

In August 2015, EHang announced that it had received $42 million in Series B funding from venture capital firms including Oriental Fortune Capital and Zhen Fund. However, just over a year later, EHang made a major layoff decision - this time, EHang laid off more than 70 people in total, affecting multiple departments, including software, development, logistics, sales, e-commerce, and customer service.

To explore the reasons, Xtecher interviewed several former and current EHang employees. A series of answers told us that layoffs are just a superficial phenomenon, but behind them are various problems that affect the entire company - drone quality issues, high prices and low prices in the supply chain, high repair rates, infighting among executives, overdue payments to suppliers, improper handling of funds... When asked about their feelings about working at EHang, two former employees said the same word: "What a pity."

"There were layoffs and the HR department fired them."

When the interviewee received the notice from his colleagues, he described his first feeling as "bewildered". On the same day, he was told by the HR that he would not have to come to work tomorrow after signing the resignation agreement and packing up his things. The speed was so fast that he had no time to think.

EHang laid off more than 70 people in total, affecting multiple departments, including software, development, logistics, sales, e-commerce, and customer service. The worst hit department was the quality control department, where more than a dozen employees, including the manager, were laid off, leaving only one person who was not directly managed by EHang and was sent by the outsourced production line.

One employee joked that the quality control department had been "wiped out".

As soon as the news came out, public opinion was in an uproar.

I still remember that in August 2015, Ehang announced that its Series B financing received $42 million from venture capital institutions such as Oriental Fortune Capital and Zhen Fund. Just over a year later, Ehang made such a major layoff decision. To explore the reasons, Xtecher reporters interviewed several former and current Ehang employees.

When asked why there were such large-scale layoffs, the interviewees did not give a clear answer, but all said that to a large extent, it was due to "lack of money."

It all started in August

Since August, many things have changed subtly.

In the early days, every meal at Ehang was a buffet with eight dishes and one soup, including fish and meat. The company would change suppliers every half a month or so to see which supplier made better food. After meals, there was afternoon tea, various snacks, various beverages in the freezer, and fragrant coffee in the instant coffee machine. At that time, in the minds of employees, Ehang was a company with good benefits.

Suddenly, starting from one day, snacks and tea were gone, and gradually, coffee was gone, and the only drinks left were soda and winter melon tea. As snacks and drinks disappeared, the food in the cafeteria became less delicious. There was even one time when there was a problem with the food provided by the supplier, and many employees were sent to the hospital after eating.

Employees are aware that when these things happen, it may be a hint of some kind of cost-cutting.

Most importantly, drone shipments are decreasing.

A former employee told Xtecher that the company's shipments vary by order of magnitude in each month. At its peak, it could ship more than 4,000 drones to the world in a month, but at its lowest, it was less than 200. Most of these drones were shipped to warehouses in China, the United States, Europe and other places. Looking only at the domestic market, Ehang's average monthly shipments are more than 100 units, and the annual shipments are about 2,000 units - but this is only the shipment volume, not the sales volume.

In contrast, every month, EHang has more than 200 employees who need to receive salaries, but its average monthly domestic market shipments are only more than 100 units. Obviously, this makes EHang struggle.

EHang’s changes are not limited to this.

An unnamed former employee told Xtecher that EHang has also begun to default on payments to suppliers. One outsourced manufacturer said that EHang owed them less than 20,000 yuan, but it had been delayed for a full year.

Due to heavy arrears, suppliers delayed delivery, resulting in Ehang being unable to deliver to customers on time. The purchasing, quality control, and engineering departments all went to the site in the hope of improving quality and production speed.

As a result, the production department urged the purchasing department to place orders, the purchasing department urged suppliers to ship materials, and the suppliers urged Ehang to pay - forming a vicious circle.

The former employee also revealed that SF Express, which delivered goods for Ehang, was also owed freight for three months. After that, SF Express froze Ehang's account and said that if the debt was not settled, it would refuse to provide delivery services for Ehang. There were even rumors within Ehang that nearly ten suppliers had come to the company to sit in collectively and demand that the payment be settled.

A company that raised $42 million a year and a half ago should have strong financial resources. Why did it default on so much money? Where did the funds go? What caused Ehang to ship only more than 100 units per month in China?

Drone quality issues

A former EHang employee told Xtecher a story:

In September 2015, Ehang was preparing to ship 600 drones to Memphis, the United States. They had just started production and were to be shipped in October. The production department and various suppliers worked overtime day and night during the National Day holiday; the quality control department tested the produced aircraft as soon as possible; and the logistics department was on standby, ready to ship at any time. However, by the time of shipment, no one could be sure how many drones could be produced - unqualified products often appeared in the supply chain, so that the aircraft often could not take off after assembly.

When the drone was ready to be shipped to the United States, someone suddenly discovered that the propellers were installed the wrong way around! Ehang sent someone to install the propellers in one day.

A former employee told Xtecher: "From October 2015 to April 2016, Ehang shipped about 4,000 drones to the United States, but more than 2,000 of them needed to be returned to the factory." Another former employee told Xtecher: "Although they were required to be returned to the factory for repair, it is uncertain whether they were actually returned in the end due to various problems."

How do these problems arise?

A former employee of Ehang told Xtecher that the technical department of Ehang once said: "The product process is too hasty" and if it is put into production hastily, many problems will inevitably arise. However, in order to seize the market as soon as possible, the company repeatedly required full production when the team's technology was not yet in place, and required "production and testing at the same time", which led to various problems in the produced aircraft.

When the test team discovered a problem and solved it, other problems arose in the newly produced aircraft - the endless problems were like endless gophers, which was primarily related to the supply chain.

Supply chain high price and low quality

Most of Ehang's suppliers are small-scale manufacturers, mainly located in Guangzhou, Dongguan, Shenzhen and other places. Due to scale limitations, some suppliers often have problems with delivery timeliness and product quality. Especially in the early days, the quality of the smart batteries produced was unstable, so that drones could be dangerous in some extreme cases. At the same time, the immaturity of Ehang's internal quality inspection process resulted in many aircraft being unable to take off after unpacking, and some testing equipment was not gradually introduced until problems were encountered.

A former employee told Xtecher that a colleague said that the engineering and quality control departments repeatedly said that the supplier's materials were too expensive, and what was more fatal was that the quality of the materials was too poor. At Ehang, during a meeting, the engineering manager knocked on the table and said, how could such poor materials produce a good drone!

As the saying goes, you get what you pay for. Why is there such a situation where the goods are expensive and of poor quality? An internal employee of Ehang hinted that "everyone knows it well":

"When it comes to purchasing matters like this, it is impossible for just one purchasing manager to be in charge," "This is a problem of Chinese private enterprises," "The materials are expensive, but the quality is very poor, and if one person succeeds, everyone else will benefit," an employee who wished to remain anonymous told Xtecher.

The return rate remains high

When logistics department employees are preparing to ship goods, they often see quality control department employees rushing over.

"Can't ship! There's something wrong with this batch of goods! It needs to be sealed!"

This has happened not once or twice, it has even become a norm.

The finished product warehouse should be filled with aircraft that have passed the inspection, but they often face the fate of being unpacked and re-inspected. Sometimes, even if only a few pieces of goods are shipped, they will receive a notice from the quality control department stating that these pieces of goods have quality problems.

Due to production capacity constraints, sometimes the same batch of aircraft needs to be produced in two batches. When the first batch of aircraft is tested and enters the finished product warehouse, the second batch of aircraft has problems. Therefore, the aircraft that entered the finished product warehouse before are also sealed and need to be re-tested.

The production model of "testing while producing" has caused a huge waste of production capacity, suffered significant economic losses, and prevented customers from receiving goods in a timely manner.

Often, even though customers signed contracts at the beginning of the month, Ehang often delayed delivery until the end of the month, and sometimes even delayed delivery for two or three months. Only when customers issued a death order requiring delivery within a few days did the company have to hold a meeting to approve the product and require departments to test the entire batch. However, this also often resulted in the situation where drones were fine during testing, but could not take off when delivered to customers, causing the company to recall and retest, wasting huge manpower and material resources.

The high return rate makes the maintenance department the busiest department in Ehang.

The maintenance department originally had its own warehouse, storing many materials for aircraft maintenance. Even so, it still needed to frequently run to the production line and warehouse to call for materials - because their reserves alone could not cope with so many aircraft that needed to be repaired.

This posed a lot of problems for Ehang’s executives.

Executives are constantly fighting among themselves

In August 2015, EHang brought in four well-known executives from listed companies, including former 21Vianet president and CFO Xiao Shangwen, vice president of finance Liu Jian, former Lenovo Group vice president Qi Wei, and former Microsoft China sales director Wang Yijun.

Investor Xu Xiaoping said at the time: "A first-class enterprise needs a first-class team to build it. EHang has gained four first-class executives in one fell swoop, which not only proves EHang's first-class appeal, but also indicates EHang's amazing growth explosiveness. He who gets the talent gets the 'sky'. I have great confidence in EHang's future!"

In addition, Ehang introduced Foxconn managers such as Cai Wengui to optimize the production process. After that, Ehang gradually introduced other senior executives, including Yan Zhiqing, former vice president of Microsoft Greater China, and Tu Min, assistant to the president.

To outsiders, these executives seem to have been brought in to optimize the company's talent structure and allow more experienced people to lead Ehang to grow more rapidly. However, according to insiders, it is more accurate to say that the investors have parachuted in a group of executives rather than introducing talents.

Ehang employees said that the company previously had fewer employees and simple personnel relations. Everyone was passionate about their work and worked towards the common goal of making Ehang bigger and stronger. Departments also cooperated well and would not deliberately shirk responsibility. However, as the number of people gradually increased, relationships became more complicated. From August 2015 to June 2016, the company's personnel changes experienced very subtle situations.

Cai Song, who was originally in charge of PMC, procurement, and logistics departments, fell into trouble at this time:

Due to the arrangement of senior leaders, Ehang introduced Cai Wengui and others from Foxconn, and let Cai Wengui be in charge of production, and another person be in charge of the quality control department, suddenly taking control of the two most important departments of Ehang.

During the period when Cai Wengui was in charge of production, he tried to transplant Foxconn's management process to Ehang, but this was resisted by some executives. Some executives tactfully stated: Don't think that you can succeed by mechanically copying.

At that time, a warehouse supervisor under senior executive Qi Wei was transferred to manage production. Later, when problems arose in production, some senior executives held the production supervisor accountable. An Ehang employee said: Anyone with a discerning eye can see the secret.

Later, Cai Song resigned from Ehang, and executive Qi Wei temporarily left Ehang headquarters, but his office was occupied by purchasing.

Once an employee made a mistake. Ehang founder and CEO Hu Huazhi said that everyone makes mistakes and should be given a chance, but the employee was eventually fired. After that, Cai Wengui hired two people to take charge of the work that was originally only done by the employee.

An employee who did not want to be named speculated: "Shao Shangwen, who was sent by the management, recruited Cai Wengui not long after. So although it seemed that Cai Wengui fired the employee, it was probably Xiao Shangwen's idea. They are carrying out a blood transfusion operation."

During this period, the number of people increased and the relationships became more complicated. Once a problem occurred, the various departments began to blame each other. Even before doing anything, people in each department were thinking about how to clear themselves of responsibility first.

Two former Ehang employees told Xtecher: Before 2016, there was a warm welcome ceremony in the WeChat group whenever a new employee joined. But when the managers from Foxconn came in, the ceremony was cancelled - and there was no welcome ceremony for new employees after that - in the eyes of Ehang's early employees, they thought this move showed to some extent that the people recruited later were not their own people.

Later, an employee from Foxconn was transferred to Europe, and soon after that person resigned. The subtleties of various details are self-evident. When asked about their feelings about working at Ehang, two former employees used the same word: "What a pity!"

An employee of Ehang told Xtecher: When the management saw that Ehang had some problems, they sent people to innovate, but as the problems became more and more, the executives left one after another for various reasons. They even thought that many executives were just on business trips, but later they found that some executives really left; some executives left with their own teams; some employees in the technical department also chose to leave at this time.

Where did the funds go?

A year and a half ago, when Ehang announced a US$42 million Series B financing, it seemed like it was on the verge of catching up with DJI.

In less than a year and a half, where did the funds go?

A former EHang employee said that the financing funds would not be available all at once, and investors would inject capital in stages, and would consider whether to continue to inject funds after seeing the results. As for how much was injected in the early stage, it is unknown.

In addition to employee salaries, EHang has invested a large part of its funds in R&D and production. EHang has currently established the 184 Command Center in Guangzhou and will announce research progress at the next CES.

EHang's sales and marketing teams are always on the move, which incurs a lot of expenses. EHang's sales staff will participate in events such as real estate openings, charity events, and car forums, and often need to receive drones from the company to sponsor certain events. According to an insider who left EHang, "EHang receives hundreds of drones every month." In addition, an anonymous Zhihu user told Xtecher, "EHang's participation in a world-class exhibition can cost millions of dollars."

On the Ehang cross-border e-commerce platform, there are sporadic orders from remote areas abroad. Due to the remoteness of the area, the profit obtained is even equal to the freight. Once there is a problem with the product, it needs to be returned, which will result in a loss.

In addition, the company did not do a good job of risk control in the early stage, and did not further process the data provided by the sales staff. Some sales staff told the company that a certain customer might intend to place an order for a certain number of units, but the company did not supply them in batches, but placed an order for production at one time. As a result, the customer suddenly regretted and said that he did not need so many, which led to a waste of production capacity. Due to the lack of risk control and reasonable production, Ehang's warehouse still had inventory produced last year.

A former Ehang employee revealed to Xtecher: "There may be tens of thousands of drones stored in the warehouse, including those that have been sealed. This is not a small amount for Ehang, which ships about 200 units a month."

Countdown

Layoffs are a superficial phenomenon, but behind them are various problems that affect the entire system:

Drone quality issues, high supply chain prices, high repair rates, infighting among executives, overdue payments to suppliers, improper handling of funds... Some employees said that the executives may have meant to "part ways amicably" with this layoff. EHang also compensated regular employees in accordance with the Labor Law.

Some people left, some stayed, and some worked hard. Some people inside Ehang also said that this layoff was just an innovation.

EHang is also working hard. According to former EHang employees, EHang's product quality finally stabilized in June and July this year, and the return rate was under control to a certain extent, although it had already lost its market advantage.

When Ehang launched the GHOSTDRONE 2.0 product in November 2015, some people inside said that the flagship version was too expensive, but the company's top management had no intention of lowering the price at that time. By then, DJI's drones had gradually lowered their prices, and by the time Ehang's top management was ready to lower prices, they had already lost the opportunity. In addition, Ehang's previous rush to release products of poor quality led to poor reputation, and it was unable to recover for a while. This led to Ehang's sales volume falling instead of rising even when its product quality stabilized in June this year.

But many of their employees are still running around, and the secret team STG continues to develop 184.

At last year's CES, Ehang exhibited a 184 model. Ehang announced that it would commercialize the 184 within a few months, but no news has been seen for so long.

Can the eye-catching 184 become Ehang's secret weapon and help Ehang recover? Ehang insiders said that they will announce the progress to the world at the next CES exhibition, and they are working hard to solve the problems that everyone is concerned about.

It seems that Ehang only has ten days left.

There has been a lot of speculation in the industry about Ehang’s future, but only time will tell.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.