Maintain “Overweight” Rating, Target Price $30

Overview

Morgan Stanley released a research report maintaining an “Overweight” rating for Hesai Technology (HSAI.US) with a target price of $30. Although Hesai Technology has fallen 9% year-to-date, the report believes its core LiDAR business remains robust and is optimistic about its new business ventures in the robotics space—particularly high-torque actuators and 3D spatial sensors—which are expected to drive growth and enhance valuation.

Core views

Despite weakening demand in the automotive market, Hesai Technology continues to maintain strong growth momentum in its core LiDAR business, with revenue expected to grow by 40–50% year-on-year in 2026. The company plans to scale cost reductions to maintain gross margins around 40%. Additionally, the company is actively expanding into new robotics-related businesses, primarily including the Kosmo smart camera and robotic high-torque actuator modules. Management anticipates these new businesses will begin contributing to revenue in 2026, with a target of reaching RMB500 million in revenue by 2027. Overseas expansion is also a key growth driver for the future, particularly as supply to international clients such as Mercedes-Benz, Xiaomi, and NVIDIA will boost overseas operations. The company currently boasts a broad customer base, including major domestic automakers like BYD, Geely, Li Auto, and XPeng, with a market share ranging from 50% to 100%.

Analysis framework

After meeting with management to gather additional insights, Morgan Stanley has strengthened its confidence in the company’s product roadmap and non-automotive businesses. They believe the company’s clear mid-term development plan can alleviate investor concerns and offers a fresh perspective on reevaluating Hesai’s business model. During the evaluation process, analysts focused on the company’s capabilities in cost control, customer retention, and technological innovation. They also analyzed the company’s positioning in the robotics space, particularly the potential opportunities arising from collaborations with NVIDIA. In terms of valuation, the company used a discounted cash flow model, assuming a weighted average cost of capital of 11.2% and a terminal growth rate of 3%.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  The discounted cash flow model is used to estimate a company’s intrinsic value.

  This model calculates a company’s intrinsic value by projecting future free cash flows and discounting them back to the present. It is suitable for evaluating companies with stable growth prospects.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Analyze the supply and demand dynamics of the LiDAR market.

  By examining changes in market demand and technology supply trends, assess the competitive landscape and growth prospects of the LiDAR industry.

• Industry/Industrial Analysis FrameworkPenetration Rate S-Curve

  Analyze the penetration rate of LiDAR in vehicles.

  Utilize an S-curve model to predict the rate at which LiDAR will become widely adopted in new vehicles, helping to determine market size and growth potential.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Analyze the company’s free cash flow situation.

  By assessing operating cash flow minus capital expenditures, measure a company’s profitability and debt-paying ability.

Asset mapping & comparison

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

• Hesai Group (HSAI.US)

  Directly benefiting from growth in LiDAR and robotics businesses

  Strengths

  Leading LiDAR technology and a broad customer base

  Weaknesses

  Facing intense price competition and relatively low customer loyalty

  Comparison

  Compared to competitors, Hesai Technology has a clear advantage in technological innovation and cost control

  Risks

  Intensifying market competition may lead to lower ASPs; macroeconomic fluctuations could impact downstream demand

Key data

• 2026 Revenue ForecastRMB4.2–4.6 billionGrowth of 40–50% year-on-year
• 2026 Net Profit ForecastRMB500–700 millionWith LiDAR business contributing RMB650–850 million
• Core LiDAR Business Gross Margin~40%Benefiting from economies of scale and cost control
• New Business Revenue Target (2026)RMB100 millionPrimarily derived from Kosmo sensors and robotic actuators
• New Business Revenue Target (2027)RMB500 millionExpected to reach core business scale

Impact & implications

Hesai Technology’s core LiDAR business will continue to benefit from the widespread adoption of ADAS systems in the Chinese market, particularly as the penetration rate among new energy vehicle manufacturers continues to rise. At the same time, the company’s new robotics initiatives are poised to become a key pillar of long-term growth, especially with support from major customers like NVIDIA, which will provide Hesai with greater market exposure and order opportunities. As overseas markets gradually open up, Hesai Technology is expected to expand its market share globally, particularly in Europe and Southeast Asia. This not only helps diversify risks but also enhances the company’s overall profitability.

Risks

• Price wars in the LiDAR market could result in declining gross margins
• Risk of new technologies replacing existing products
• Global economic slowdown may affect downstream customer demand
• Geopolitical tensions could increase supply chain risks

What to watch

• Progress in new businesses, particularly the sales performance of Kosmo sensors and robotic actuators
• Order intake in overseas markets, especially developments with Mercedes-Benz, Xiaomi, and NVIDIA
• The pace at which LiDAR is being adopted by traditional OEM manufacturers
• Effectiveness of cost control and changes in gross margins