In October, I warned investors that flying car firm EHang (NASDAQ:EH) had an order book that looked suspiciously weak:

During the most recent quarter, EHang delivered just five units, down from 11 in the previous quarter. This suggests that EHang either lacks the purchase orders for its thousand-unit backlog or is struggling to raise enough cash to fund production.

On Nov. 7, short seller Hindenburg Research released a detailed, 8,000-word report on EHang that provided deeper evidence for these doubts. The report detailed how much of EHang’s 1,300-plus unit order book looked to “almost entirely be vapor” and how early sales “bear all the hallmarks of fake revenue.”

After examining every preorder and partnership, itemized below, our research indicates that over 92% of EHang’s preorder book is based on deals that were later “abandoned” or came from customers in no financial position to purchase EHang’s aircraft in volume, or at all.

… Trust is crucial in the aviation industry, both for investors and potential customers who are literally putting their lives at risk. We think the company is a fatal accident waiting to happen, both for investors and for passengers.

Investors now have a tough decision to make. On the one hand, EHang remains one of the most advanced eVTOL companies from a regulatory standpoint. In October, the company gained a “type certification” for its 2-passenger 216-S model from the Civil Aviation Administration of China (CAAC). Its shares also trade for a fraction of competitors.

On the other hand, EHang now joins a growing list of transportation startups that have allegedly misled investors with outlandish promises. Though these bets can sometimes pan out, history tells us that failure is far more common.

The $1 Billion Hustle

Hindenburg Research isn’t the first company to accuse EHang’s management of faking sales. In February 2021, shares of the Chinese EVTOL firm fell 63% after Wolfpack Research released a 33-page report that called EHang a stock promotion destined to crash and burn.

We conclude that EH’s relationship with its primary purported customer is a sham. Government records and credit reports show that EH’s major customer is Shanghai Kunxiang Intelligent Technology Co., Ltd. … We have gathered extensive evidence including behind-the-scenes photographs, recorded phone calls, and videos of on-site visits to EH’s various facilities, as well as Kunxiang’s offices which lead us to believe that Kunxiang signed sham sales contracts to benefit its investment stock price in EH…

Wolfpack’s researchers could not buy any EHang aircraft from its supposedly largest distributor. Official office addresses led to units that didn’t exist. And photos of EHang’s production facility revealed largely empty warehouses with no production equipment. Not even tools. In other words, much of EHang’s production and sales were likely nonexistent.

Hindenburg Research finds further evidence of these claims. By estimating EHang’s entire order book, the short seller found that the vast majority of the EVTOL firm’s preorders were likely from a 2016 preorder from United Therapeutics (NASDAQ:UTHR), a company that has since sold its EH stake and distanced itself from the Chinese firm. The company’s nearly $1 billion market capitalization could well be powered by phantom orders.

Hindenburg also voiced similar concerns about EHang’s financial standing. In its most recent filings, EHang reported only $44.9 million of cash left on hand, compared to $414 million at rival Archer Aviation (NYSE:ACHR) and $1.2 billion at Joby Aviation (NYSE:JOBY). EHang’s low cash balance makes no sense in an industry with enormous research costs, high capital intensity, and revenues that may not materialize for years.

Finally, the new short report details links between EHang’s $23 million capital raise in July 2023 and the fundraising leader, a “renowned South Korean Music Producer” formerly wanted by INTERPOL and sentenced to 2 years in prison for embezzlement. While this is not “smoking gun” evidence, this builds on EHang’s history of questionable closed-door deals.

EH Stock: Fake It ‘Til You Make It

Of course, none of this means EHang will disappear overnight.

Many of Hindenburg’s targets continue to do relatively well. Online betting firm DraftKings (NASDAQ:DKNG) has recovered two-thirds of its losses since 2021 after the short seller accused the firm of hiding black market operations. Wall Street analysts expect DraftKing’s revenues to surge 63% this year as sports betting migrates online. Some of Hindenburg’s pans have even become top picks after their legitimate businesses eclipsed their questionable dealings.

Venture capital investors are familiar with these risks. Startups often make enormous promises and fudge numbers to help raise capital, allowing those dreams to get built. It’s a “fake it til you make it” mindset that incentivizes founders to overpromise and pretend things are working… even when they aren’t. EHang issued a rebuttal to Hindenburg’s allegations within hours.

EHang’s elevated market capitalization also makes success still possible. Shares of the flying car startup trade north of $850 million, which means raising $250 million — roughly what rival Joby Aviation spends in a year — will dilute EHang’s existing shareholders by less than a third. Tesla itself (with its inflated share prices) diluted shareholders by 10% annually between 2012 and 2020. And local Chinese governments have a long history of helping startups they deem important succeed, no matter the cost to taxpayers.

But Hindenburg’s outsized voice suggests that EHang now faces an uphill battle in regaining investor trust. Public shareholders are often less patient than their venture capital counterparts, and EHang’s U.S. listing exposes it to American (rather than Chinese) investors. If history repeats itself, investors could see themselves owning the next Nikola Motors (NASDAQ:NKLA) in short order.

What’s Next for EHang Stock?

Since 2020, Hindenburg Research has gathered a strong track record of shorting stocks. According to Thomson Reuters, companies reported by Hindenburg have dropped by 12% on average over the first seven days and then lost another 19% over the following six months. An equivalent decline at EHang would see roughly $280 million of shareholder value wiped out.

My quantitative AI stock-picking system MarketMasterAI comes to a similar conclusion. EHang scores an F in the system, and the stock is expected to lose 15% at an annualized rate.

No investor should directly short shares of any flying car company unless they have significant protective measures in place. But Hindenburg’s latest report now suggests that even EHang — the eVTOL startup that has delivered the most aircraft so far — might be mostly smoke and mirrors.

On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.