China Robotaxi Sector: Physical AI potential not yet priced in

While many would agree that autonomous driving has the potential to be the next major application of physical AI, leading robotaxi companies Pony and WeRide have seen their share prices fall 50-60% YTD, despite delivering solid progress in domestic and international markets. Pony and WeRide have a combined value of US$4bn, on par with humanoid robotics player Ubtech, but significantly below XPeng's robotics unit at US$6bn and Unitree at US$25bn. With domestic licence approvals gradually resuming and overseas collaborations starting to bear fruit, we remain constructive on the robotaxi sector. We maintain Buy on Pony and WeRide, but reduce our PTs to US$10 and US$8, respectively, to reflect rising cost of capital and reduced market risk appetite. With Pony and WeRide achieving unit economics breakeven in individual cities, competition in robotaxi deployment is shifting from technology and business model validation to scaled operations. We expect accelerating progress towards mass deploy