Bernstein sees ADAS suppliers as better investments than OEMs

Bernstein analyst Eunice Lee identifies Advanced Driver Assistance Systems (ADAS) component suppliers, or 'enablers,' as superior investment opportunities compared to automakers, likening the market to a gold rush due to their benefit from ecosystem growth. The firm notes significant ADAS penetration in China's EV sector and rates suppliers like Horizon Robotics, Sunny Optical, Hesai, and Desay as Outperform, while Black Sesame received an Underperform due to software deficiencies. Bernstein also forecasts 8% growth for China's overall auto market in 2025 and 25-30% growth in EV sales, maintaining Outperform ratings on automakers such as BYD, Xiaomi, and Geely.

Analysis

Bernstein research posits that the most attractive investment opportunities within the burgeoning Advanced Driver Assistance Systems (ADAS) market are not automakers, but rather the component suppliers, or "ADAS enablers." The analyst likens this to a gold rush, where selling picks and shovels is more profitable than mining. This thesis is substantiated by rapid ADAS adoption in China, where an estimated 23% of passenger vehicles sold in H1 2025 will feature highway Navigation on Autopilot (NOA), with penetration surging to approximately 50% for electric vehicles and 80% for premium EVs priced over RMB 250,000. Bernstein identifies specific outperformers in the supply chain, including Horizon Robotics for chips, Sunny Optical for lenses, Hesai (HSAI) for LiDAR, and Desay for domain controllers. Conversely, the Underperform rating on Black Sesame due to a stated lack of software expertise highlights the critical importance of integrated hardware-software capabilities. While the broader Chinese auto market is projected for healthy growth—8% overall in 2025, with EV sales growing 25-30%—the firm's ratings on automakers are mixed. Leading players like BYD receive Outperform ratings, but prominent EV makers such as XPeng (XPEV), Li Auto (LI), and NIO (NIO) are rated Market-Perform, reinforcing the view that suppliers offer a more direct play on the ADAS growth theme.

Key Decisions for Investors

• Investors seeking exposure to the autonomous driving trend should consider prioritizing investments in the ADAS component supply chain, focusing on providers of critical technologies like LiDAR, ADAS chips, and domain controllers over a broad portfolio of automakers.
• When evaluating ADAS suppliers, it is crucial to assess their integrated software capabilities, as this is identified as a key differentiator for success, favoring companies with strong hardware-software solutions over pure hardware plays.
• Monitor the forecasted deceleration of China's EV sales growth from 25-30% in 2025 to 10-15% in 2026, as this maturation could temper valuations across the EV and ADAS ecosystem.
• For direct automaker exposure, a selective approach is warranted; consider overweighting specific names with Outperform ratings like BYD, rather than holding a basket of EV manufacturers that includes those with more neutral Market-Perform ratings.