Hesai: Better Business, Difficult Price

What happened

Hesai's 2025 results demonstrated scale and profitability with 1.62M units shipped, 41.8% gross margin, and RMB436M net income, but Q1 2026 saw gross margin dip to 39.1% and net income of only RMB18M, highlighting pricing pressure. Despite shipment acceleration and a robust roadmap including Mercedes and robotics wins, the stock has underperformed sector ETFs over the past year, prompting Seeking Alpha to reiterate a Hold on valuation concerns. The latest DeepValue report takes a contrarian view, rating the stock a potential buy with a base case of $21 and attractive entry at $16, arguing the market discounts geopolitical risk but underappreciates Hesai's manufacturing moat and liquidity. The next decisive catalyst is Q2 2026 results (released August 18) which must show shipment tracking toward 3.0-3.5M and gross margin recovery above 40% to validate the bull case. Until then, the stock remains a battleground between proven commercialization and unresolved margin and policy risks.

Implication

The attractive entry level of $16 provides a margin of safety given Hesai's RMB7.5B cash pile and net cash position. If Q2 shows shipments above 3M annualized and gross margin above 40%, the stock could re-rate toward the $21 base case or higher. However, if margin remains at 39% or below, the scale thesis weakens and the bear case of $14 becomes more likely. Geopolitical risk from Section 1260H and U.S. policy scrutiny remains a binary overhang that could impair North America revenue and customer access. Overall, position sizing should be modest until Q2 evidence confirms the conversion of design wins into profitable volume.

Thesis delta

The thesis shifts from Hold to Potential Buy as the stock's decline to $18.4 brings it closer to our $16 attractive entry and base case of $21. Hesai's 2025 profitability and liquidity cushion reduce downside risk, but margin durability remains unproven until Q2 shows gross margin above 40%. The burden is now on Q2 results to confirm that scale translates into sustainable economics rather than just volume growth.