Hesai: Bullish On Narrower Losses And Unchanged Full-Year Targets

Hesai Group (HSAI) reported a smaller-than-expected GAAP loss of -CNY 0.018B for 1Q25, a significant improvement from -0.11 billion RMB in 1Q24, driven by a 46% YoY revenue increase to CNY 0.53B and expense optimization. The company's market share in China's LiDAR sector grew to 36.5% by March 2025, and management anticipates continued growth with 2Q25 sales expected to increase 53% YoY; the company also expects to be GAAP breakeven in 2Q25. Despite potential risks from tariffs and economic downturns, a 'Buy' rating is maintained, citing an undervalued NTM Enterprise Value-to-Revenue ratio compared to peers.

Analysis

Hesai Group (HSAI) demonstrated significant financial improvement in its 1Q25 results, with its GAAP net loss narrowing substantially to -CNY 0.018 billion from -CNY 0.11 billion in 1Q24, surpassing analyst expectations of a -RMB 40 million loss. This progress was driven by a robust 46% year-over-year revenue surge to CNY 0.53 billion, marking an acceleration from the 28% growth seen in 4Q24, attributed to the "rapid adoption of our ATX LiDAR among OEMs." Concurrently, HSAI expanded its market share in China's LiDAR sector by 710 basis points to 36.5% between December 2024 and March 2025, according to NETime data. The company also benefited from emerging economies of scale, with management indicating stable future R&D investments despite growing revenue, and successful expense optimization, evidenced by a CNY 25 million (9% YoY) reduction in operating expenses, keeping it on track for its RMB 0.1 billion full-year cost reduction target. Management has maintained a positive outlook, forecasting 2Q25 sales growth of 53% YoY (mid-point) and reaffirming FY25 revenue expansion of 56%, supported by strong prospects from key customers like Li Auto and Xiaomi, whose new models are expected to feature LiDAR. Furthermore, HSAI anticipates achieving GAAP breakeven in 2Q2025 and has reiterated its FY2025 gross profit margin guidance of 40%, noting minimal direct impact from U.S. tariffs, with only a "low-single digit percentage of its total costs" related to U.S. imports and a small fraction of its revenue subject to DDP terms. Despite these positive developments, potential risks include a delayed path to profitability, indirect tariff impacts on international sales, and a potential U.S. recession affecting auto demand. The company's NTM Enterprise Value-to-Revenue multiple of 5.4x, as per S&P Capital IQ, stands at a discount to peer Luminar's (LAZR) 7.2x, suggesting relative undervaluation.

Key Decisions for Investors

• Given Hesai's accelerating revenue growth, significantly narrowing losses, and management's forecast for achieving GAAP breakeven in 2Q2025, investors could interpret the current operational momentum and financial trajectory positively.
• The NTM EV/Revenue multiple of 5.4x, which is 33% lower than its peer Luminar, suggests a potential undervaluation that may warrant further investigation for accumulation, while remaining vigilant about geopolitical trade tensions and macroeconomic headwinds, particularly a U.S. recession.
• Investors should closely monitor the company's ability to deliver on its 2Q2025 GAAP breakeven target, maintain the guided 40% gross profit margin throughout FY2025, and continue its market share gains driven by LiDAR adoption by key automotive OEMs.