China car suppliers can be early winners in the humanoid race, Morgan Stanley says

Morgan Stanley analysts predict a significant growth opportunity for auto parts suppliers from the emerging humanoid robot market, potentially reaching $5 trillion globally by 2050, with suppliers capturing up to 60% of production costs per robot. The firm upgraded Sanhua and Xusheng, and maintained an overweight rating on Tuopu, citing their potential to supply key components like actuators and structural parts for humanoids, similar to their success in the EV market; however, geopolitical risks and uncertainties surrounding the pace and scale of the humanoid industry remain concerns.

Analysis

A Morgan Stanley research report posits that humanoid robotics will constitute a 'third wave of growth' for automotive parts suppliers, projecting a potential global market of $5 trillion by 2050. The analysis indicates these suppliers are well-positioned to capture 47% to 60% of the parts and materials spending for each robot, equating to approximately $15,000 per unit. This thesis is supported by upgrades to two Chinese suppliers: Sanhua was moved to Overweight with a 30 yuan price target, citing its potential in actuator modules and a new plant in Thailand to mitigate geopolitical risk. Xusheng was upgraded to Equal Weight with a 12 yuan target, based on a modest revenue recovery from Li Auto. Tuopu's Overweight rating was maintained with a 63 yuan price target, reflecting a nearly 39% upside, driven by its strategic position in actuators, which account for almost half of a humanoid's cost, despite a target trim due to softer Tesla orders. The analysts favor 'tier-1' assemblers like Sanhua and Tuopu as they are insulated from specific technological path dependencies. However, the report cautions that significant uncertainties remain, including the timeline for market development, the ease of transitioning from auto to humanoid parts production, and geopolitical tensions that could disrupt the cost advantages of Chinese suppliers.

Key Decisions for Investors

• Investors should consider prioritizing 'tier-1' module assemblers like Sanhua and Tuopu for exposure to the nascent humanoid robotics theme, as their role in assembly provides a degree of insulation from specific component technology risks.
• Evaluate the distinct risk-reward profiles of the highlighted suppliers, weighing Tuopu's higher potential upside against its near-term headwinds from softer Tesla orders versus Sanhua's more balanced growth story and geopolitical hedging.
• Given the speculative, long-term nature of this theme, positions should be sized appropriately, and investors must actively monitor key risks, including the pace of humanoid adoption and any escalation in U.S.-China trade friction.
• The upgrade of Xusheng to Equal Weight on the basis of a modest recovery from Li Auto, rather than a strong humanoid thesis, suggests investors should view it as a more cautious or turnaround-oriented play compared to the other names.