Summary

• WeRide is a 'Buy' due to its strong foothold in China, the leading market for autonomous vehicles, and its strategic global expansions.

• The robotaxi market is projected to exhibit significant growth, with potential revenues of $2,377 billion if 50 million robotaxis operate globally.

• Nvidia's significant investment in WeRide underscores the company's potential, bolstered by its impressive gross margins and strategic partnerships with leading tech firms.

• WeRide's advantages include cost-effective operations, regulatory advancements in key markets, and a massive TAM, positioning it for sustained high double-digit revenue growth.

• Using the P/S method and comparing WeRide to its peer, Tesla, I get a target price of $76 per share.

Sundry Photography/iStock Editorial via Getty Images

Investment Thesis

It’s time to cover this massive growth opportunity of autonomous vehicles, more specifically the world of robotaxis. This is certainly a hot theme nowadays. I’m sure that you’ve heard about ARK Invest and its front figure Cathie Wood. In their latest report ARK states that there might be as much as 50 million robotaxis operating globally by 2030. If that is true, the robotaxi players are set for a significant bull ride in these coming years.

So, in this segment there are a few players competing. Of course, we have American vehicle manufacturer Tesla (NASDAQ:TSLA), but I believe that Tesla is rather expensive right now with a market cap of over $1 trillion. Also, you need to take into account that the largest untapped market opportunity for robotaxis in the near term will not be the US but instead China is taking the first place here. So, why not buy a stock with a strong foothold in the Chinese market, and a modest market cap of only $8.65 billion compared to Tesla’s astronomic $1.14 trillion valuation. That stock would be WeRide (NASDAQ:WRD).

I argue that WeRide is all set to capture a decent share of the market going forward, with a strong foothold in China, the geographic mecca for robotaxis. Maybe that’s the reason Nvidia recently invested in WeRide, apart from the obvious fact that the market for robotaxis is booming. I’m rating WeRide a 'Buy'. This is after the stock surged over 83% last Friday on news that Nvidia bought a major stake in the startup. The stock is now up by 81.35% over the last three months, but I believe there is plenty of upside left.

Data by YCharts

Strong Global Momentum

WeRide is a first-mover in this robotaxi boom, and the only tech company in the world with driverless permits in both China, the UAE, Singapore and the US. Moreover, the company has operations in 30 cities across nine countries, and actively working to expand its reach. Recent developments include WeRide launching the largest robotaxi service outside the US and China, this time in Abu Dhabi, UAE, in a strategic partnership with Uber.

Uber riders in Abu Dhabi requesting UberX or Uber Comfort may be matched with a WeRide AV for qualifying trips. The service will be available in key areas, between Saadiyat Island, Yas Island, and routes to and from Zayed International Airport, with plans to expand the operating territory in the future.

Furthermore, WeRide launched the first L4 autonomous robobus service in Singapore in July 2024, transporting clients between luxury hotels and resorts.

WeRide has also begun to penetrate the European market with Robobus shuttles recently deployed at Zurich Airport in Switzerland, and with eyes on the UK next.

WeRide

Yes, a delegation of the UK government visited WeRide’s office in Guangzhou early this year in order to learn more about this futuristic AV opportunity and how the UK may integrate autonomous driving into its society. I expect UK to adopt AV solutions shortly.

Summarily, the momentum for robotaxis is strong and I’m sure that every government in the world is thinking of how they can integrate autonomous driving into their societies. This is because autonomous driving comes with many benefits. First, its a highly cost effective way of transportation with costs going as low as $0.25 per mile according to research shared by ARK. Secondly, autonomous driving addresses challenges such as high traffic accident rates, and aging and shrinking labour forces.

Robotaxis: a booming market opportunity

We all know that the market for robotaxis is huge, but still. The total addressable market is projected to reach 188.91 Billion by 2031, growing at a CAGR of ~60%, based on research published by Precedence Research.

Precedence Research

Also, if we anticipate that there will be 50 million robotaxis operating globally by 2030, as stated by ARK Invest, the TAM would be even higher. Let’s run some calculations, assuming the following:

• 50 million robotaxis

• 15 rides per day

• $10 per ride

With 50 million robotaxis and 15 rides per day and robotaxi we get 237.750 billion rides per year, resulting in revenues of roughly $2,377.50 billion. If that is true, and WeRide captures a mere 10% of the market, this translates into revenues of around $238 billion per year. Please note that this projection is very speculative, and that I will use a more conservative approach for my valuation of WeRide, but it shows the vast potential that companies like WeRide hold.

Nvidia just joined the bulls

I’m sure it did not pass unnoticed that Nvidia dropped Soundhound AI and Serve Robotics while buying a significant stake in Chinese WeRide. So, maybe we find the reasons behind Nvidia’s buy in the vast growth that the Robotaxi market is forecasted to uphold in these coming years. As mentioned, the robotaxi market is expected to grow at a CAGR of 60% in the coming years. You need to look hard, and I’m not even sure you’ll find another market with a growth rate near that of robotaxis.

Accordingly, it takes no rocket science to come to the conclusion that WeRide is set for a major bull ride, with multiple years of high double-digit revenue growth ahead. Another interesting aspect of Nvidia’s latest move is that the company shifted its focus from US-based investments to companies overseas, like WeRide and Nebius Group.

Summary of Growth Catalysts

There are several growth catalysts for WeRide, which I summarize here:

1. As a Chinese company, WeRide is perfectly positioned to grasp a share of the massive market opportunity existing in China. The country is said to lead in the adoption to fully autonomous driving and having a strong foothold in the country is a big advantage that I believe will help drive significant revenue growth for years to come.

2. Fully autonomous robotaxis are cheaper to operate than regular taxis, as you don’t need a human driver, with costs going as low as $0.25 per mile. This means that there is a financial incentive for customers to shift demand from traditional taxi journeys to robotaxis.

3. Although US and China remain the key markets for autonomous driving in the near term, with much of the demand coming from those two countries, I can see that several other countries are starting to implement regulatory measures, paving the way for autonomous driving. This includes recent regulations enacted by the German government for example. Germany was the first country in the EU to legalize fully autonomous driving without the need of a safety driver.

4. Having the world’s leading AI chip manufacturer as a major shareholder, that being Nvidia, is a big plus. It brings both recognition to WeRide as a company and emphasizes the strength of its business model, while providing close ties to one of its key hardware & software suppliers, as WeRide’s autonomous driving functionality is built on Nvidia GPU’s and Nvidia's AI software. Also it’s a rather big stake that Nvidia just announced, 1.7 million shares worth $54 million.

Financials & Valuation

For WeRide I expect revenues to grow by 100% in the first three years, in line with analyst consensus, while falling slightly in the remainder of the forecast period. This gives us revenues of $2,038 million by 2030. Furthermore, WeRide is boasting with very impressive gross margins. Its gross margin has been roughly 40%, give or take, during the last few years and I expect the company to maintain that level also for the future. This can be compared to Tesla who has a gross margin of 17.86% TTM.

HedgeMix, in million USD

For valuation purposes I’m using the P/S method as WeRide is yet to be profitable. I have compared the P/S ratio of WeRide to that of Tesla. Tesla currently trades at a forward P/S ratio of 10.22x. I find it likely that WeRide will trade at a similar multiple ones the company starts generating some serious revenue streams. I expect the market for robotaxis to remain a high-growth market for at least 10-15 years, justifying a high P/S ratio. Using my 2030 revenue forecast, we get a market cap of roughly $20.8 billion for WeRide. With 274 million in outstanding shares that translates into a target price of $76 per share.

Risks

As with all investments there are some risks I would like to highlight:

1. WeRide is not profitable. In FY2023 the company posted a net loss of $279.2 million. It's likely that WeRide will need to raise additional capital causing shareholder dilution, which may affect the stock price negatively.

2. The market forecast is strong but there may be a delay in the global adoption of autonomous vehicles as regulations may put spokes in the wheels for WeRide. Germany is the first country in the EU to enact on a self-driving regulation but many countries remain.

3. Tensions between the US and China may create obstacles for WeRide, who have operations in both jurisdictions.

Conclusion

I believe that invention of robotaxis is one of the biggest revolutions of our time, hand by hand with artificial intelligence. Autonomous driving opens so many doors. It reduces costs of transport while allowing humans to move more freely from place to place without the need of a driver. Still, it seems that the stock market is a bit slow, as I argue that this massive growth opportunity of robotaxis is yet to be reflected in the stock price. Sure, there was a significant run this friday as Nvidia's stake got public, but it only proves my point. For me, WeRide looks cheap at its $8.65 billion valuation. As such, I rate the stock a 'Buy'.