Regulatory Delays And Partner Risks Will Challenge Autonomous Expansion Yet Long-Term Automation Tailwinds Remain

Catalysts

About WeRide

WeRide develops and deploys autonomous driving technologies across robotaxi, robobus and advanced driver assistance systems for global markets.

What are the underlying business or industry changes driving this perspective?

• Although city level driverless permits in Abu Dhabi and Switzerland validate WeRide's technology and create a template for scaling, replication into other regions may be slower than expected due to regulatory complexity and safety validation requirements. This could cap revenue growth from international robotaxi over the medium term.
• Despite long term urbanization and rising labor constraints in mobility and public transport that structurally favor automation, slower fleet ramp up from around 1,600 L4 vehicles today toward the tens of thousands targeted by 2030 could dilute operating leverage and delay improvement in net margins.
• While partnerships with Uber, Grab and European transport operators expand distribution without heavy balance sheet burden, dependence on partners for pricing, user access and fleet ownership introduces renegotiation and margin pressure risks. These factors could limit earnings expansion from service revenue sharing.
• Although the dual flywheel between L4 robotaxi and L2+ WePilot ADAS with OEMs like Chery and GAC offers a scalable data and software revenue base, OEMs developing in house autonomy stacks or switching suppliers could restrain long run ADAS license fees and compress gross margins.
• While the industry is structurally shifting toward software defined vehicles and autonomous mobility platforms, WeRide’s sustained high R&D intensity and global compliance costs may outpace near term monetization. This could keep adjusted net losses elevated even as headline revenue grows strongly.

Assumptions

This narrative explores a more pessimistic perspective on WeRide compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming WeRide's revenue will grow by 92.4% annually over the next 3 years.
• The bearish analysts are not forecasting that WeRide will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate WeRide's profit margin will increase from -330.7% to the average US Auto Components industry of 5.3% in 3 years.
• If WeRide's profit margin were to converge on the industry average, you could expect earnings to reach CN¥192.6 million (and earnings per share of CN¥0.46) by about December 2028, up from CN¥-1.7 billion today.
• 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 237.9x on those 2028 earnings, up from -13.0x today. This future PE is greater than the current PE for the US Auto Components industry at 19.7x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Autonomous driving regulation is still fragmented globally, and progress toward city level driverless permits beyond early markets such as Abu Dhabi and Switzerland may be slower than management anticipates. This would constrain long term fleet deployments and limit revenue growth.
• WeRide remains deeply loss making, with an adjusted net loss of RMB 276 million in the quarter and an R&D heavy cost structure. If unit economics in key markets fail to reach sustainable profitability, continued cash burn could pressure liquidity and delay improvement in net margins and earnings.
• Dependence on partners such as Uber, Grab, Bosch, GAC and Chery for distribution, data and hardware could weaken WeRide’s bargaining power over time. Any partner insourcing autonomy or favoring competing solutions would reduce ride share, license fees and product sales revenue.
• The robotaxi and ADAS markets are attracting large OEMs and ride hailing platforms with vast data pools and capital. Intensifying competition or faster than expected progress from these players could compress pricing and erode WeRide’s long run gross margins and earnings potential.
• Scaling L4 fleets to tens of thousands of vehicles by 2030 requires high capital intensity from ecosystem partners and resilient demand in markets with rising labor shortages. Any macro slowdown, tighter financing or weaker rider adoption could cap utilization, limiting revenue growth and delaying a path to positive net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for WeRide is $12.02, which represents up to two standard deviations below the consensus price target of $15.73. This valuation is based on what can be assumed as the expectations of WeRide'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 $21.3, and the most bearish reporting a price target of just $12.02.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be CN¥3.6 billion, earnings will come to CN¥192.6 million, and it would be trading on a PE ratio of 237.9x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $9.12, the analyst price target of $12.02 is 24.1% higher.
  
• 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.