Morgan Stanley upgrades an under-the-radar China robotics play, sees big upside

Morgan Stanley upgraded Hesai Group (HSAI), a Chinese LiDAR supplier, to Overweight from Equal Weight, setting a new price target of $26 that implies 22% upside. The upgrade is predicated on Hesai's increasing market share in China's rapidly growing LiDAR adoption for NEVs, reaching 37% in May 2025, with analysts forecasting continued volume gains from partners like Xiaomi and Leap Motor. Additionally, the firm anticipates a significant second revenue growth driver from 2026 onwards through the robotics sector, including robotaxis and smart home devices, which promise higher ASPs and margins. Near-term headwinds are considered largely priced into the stock, with overseas L2+ smart driving adoption also expected to fuel future growth.

Analysis

Morgan Stanley has upgraded Hesai Group (HSAI) to Overweight, citing a multi-pronged growth thesis that suggests significant future upside despite a 54% year-to-date share price increase. The core driver is Hesai's accelerating market dominance in China's rapidly expanding LiDAR market for New Energy Vehicles (NEVs). The company's volume share surged to 37% in May 2025 from 22% a year prior, occurring as LiDAR adoption grew to be included in over one-fifth of all NEVs sold in China. While near-term headwinds from key customers like Li Auto and BYD are noted, the analyst believes these are largely priced in, with future volume growth expected from new partnerships with Xiaomi and Leap Motor. A second major growth vector is anticipated from 2026 onwards in the robotics sector, specifically from robotaxis and smart home appliances, which are projected to offer higher average selling prices (ASPs) and margins. The total addressable market for humanoid and smart home robotics alone is estimated at $5 billion. This is complemented by a third pillar of international expansion, with L2+ smart driving adoption outside China forecasted to reach 15-20% by 2030, potentially making LiDAR a standard feature on vehicles priced above $30,000.

Key Decisions for Investors

• Investors could consider the stock favorably, as the Morgan Stanley upgrade to a $26 price target is underpinned by a clear, multi-year growth narrative spanning domestic market share gains, international expansion, and a high-margin robotics business.
• Monitor key performance indicators for validation of the thesis, specifically tracking Hesai's continued volume share in the Chinese NEV market, announcements of new overseas automotive partnerships, and initial revenue or major contract wins in the robotics segment ahead of the 2026 forecast period.
• While the outlook is positive, remain cognizant of the stock's substantial 54% year-to-date rally and the noted headwinds in the Chinese EV market; any faltering in execution on the projected growth drivers could expose the valuation to downside risk.