Geopolitical And Competitive Pressures Will Hinder Lidar Expansion

Key Takeaways

• Geopolitical tensions, policy shifts, and rising competition threaten global expansion, revenue growth, and margin stability for Hesai's lidar business.
  
• Alternative technologies and falling prices risk shrinking Hesai's addressable market and limiting long-term earnings potential.
  
• Strong demand in automotive and adjacent sectors, global partnerships, manufacturing expansion, and innovation are driving diversified revenue, profitability, and resilience amid regulatory and geopolitical shifts.

Catalysts

Through with its subsidiaries, engages in the development, manufacture, and sale of three-dimensional light detection and ranging solutions (LiDAR) in Mainland China, Europe, North America, and internationally.

• Escalating geopolitical tensions and increasing protectionism-particularly between China and Western markets-threaten to severely limit Hesai's access to international customers and partners, which could cap global expansion prospects and stifle future revenue growth.
  
• The pace of government policy shifts and regulatory changes presents a significant risk: reductions in subsidies or diminished focus on autonomous driving initiatives may slow the adoption of lidar technology, shrinking the total addressable market and pressuring both top-line growth and order volume.
  
• Rapid commoditization and intensifying competition in the lidar hardware segment are driving sharp average selling price declines; with the flagship ATX product now priced around $200 and customer discounts eroding further, this trend is likely to push down revenue per unit and compress gross margins in later years despite scale.
  
• Heavy R&D investment will be required simply to keep pace as global competition for talent and innovation in sensing and perception solutions intensifies, which risks outstripping revenue growth and resulting in deteriorating net margins-even as operating expenses are currently touted as efficient or stable.
  
• The market for lidar sensors faces the persistent threat of alternative technologies-including radar, camera-based systems, and sensor fusion-which could ultimately reduce the necessity and penetration of lidar in future vehicle platforms, directly shrinking Hesai's addressable market and resulting in longer-term stagnation of revenue and diminished recurring earnings potential.

Hesai Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hesai Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hesai Group's revenue will grow by 38.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.1% today to 12.9% in 3 years time.
• The bearish analysts expect earnings to reach CN¥847.9 million (and earnings per share of CN¥6.49) by about August 2028, up from CN¥103.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 36.2x on those 2028 earnings, down from 214.0x today. This future PE is greater than the current PE for the US Auto Components industry at 17.1x.
• Analysts expect the number of shares outstanding to grow by 1.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Hesai Group Future Earnings Per Share Growth

Risks

• Accelerating adoption of autonomous vehicles, rising lidar penetration rates (bolstered by regulatory moves like AEB mandates), and strong demand for ADAS in both premium and mass-market vehicles are driving robust shipment growth, which increases the likelihood of sustained revenue expansion and operating leverage for Hesai in the coming years.
  
• Strategic design wins and deepening partnerships with top global OEMs, along with expanding footprints in large international markets (including the world's largest-ever automotive lidar program with a leading European OEM), are supporting long-term revenue visibility and reducing dependence on a few domestic customers.
  
• Hesai's continuous product innovation and strong cost discipline-evidenced by industry-leading gross margins around forty percent and rapid ramp-up of lower-cost, high-volume ATX sensors-support healthy profitability and net income growth despite modest average selling price declines.
  
• Successful expansion into adjacent high-growth verticals, such as robotics, logistics, and smart home devices, is diversifying revenue streams and positioning Hesai to benefit from secular growth beyond automotive, potentially leading to higher long-term earnings stability.
  
• Investment in high-capacity, automated manufacturing (both domestically and overseas) mitigates geopolitical risks such as tariffs and supply chain disruptions, thereby enabling Hesai to meet growing global demand while protecting or expanding both gross and net margins.

Valuation

• The assumed bearish price target for Hesai Group is $24.03, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hesai Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $37.1, and the most bearish reporting a price target of just $24.03.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥6.6 billion, earnings will come to CN¥847.9 million, and it would be trading on a PE ratio of 36.2x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $23.26, the bearish analyst price target of $24.03 is 3.2% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.