In just three short months, the A-share robotics index in China has surged nearly 80%, emerging as a superstar in the capital marketsKey players such as Efut, with an impressive increase exceeding 350%, along with TOSY and Sanfeng Intelligent boasting gains over 210%, have set the stage for a fascinating narrativeMoreover, companies like Keli Sensor and Northern Technology have also seen strong performances of around 180% and 120%, respectivelyBut what has driven such explosive growth, and does the future hold even greater opportunities for investors in this rapidly evolving sector?

The outbreak in the robotics industry relates closely to a broader bull market within the A-shares, particularly as the investment landscape appears to favor smaller, more agile companiesBehind the excitement surrounding these robotics firms lies an intricate industrial logic pivoting from conceptualization to mass production, reminiscent of the meteoric rise of electric vehicles, solar energy, and wind power around 2020.

The lifecycle of an industry can be broken down into five distinct stages based on penetration rates and acceleration of growth

The first stage, ranging from 0% to 5%, is characterized by a low penetration rate and gradual growth, leaving many companies unable to turn a profitIn the second stage, with penetration rising from 5% to 25%, leading enterprises might enjoy astronomical growth rates, often exceeding 100%, with returns on equity (ROE) reaching up to 35% and dynamic price-to-earnings (PE) ratios soaring as high as 120XAs the competition heats up in the third stage, growth slows from 10% to 50%, presenting increased risks for investors and resulting in a central profit growth rate of about 50% with PE ratios normalizing back to 15-45XThe fourth stage witnesses a more stable competitive landscape, with penetration climbing from 50% to 80%; however, the growth rate falls to about 20-30%. Finally, the fifth stage signals a decline, where growth dips to a central rate of around 10%, alongside a reduced PE ratio of 10-20X.

Each of these stages provides distinct metrics for market valuation and motivational drivers

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The robotics sector in China appears poised to transition into its second growth phase by 2025, supported by an increasing frequency of robotics-related announcements emerging since the second half of this year.

For example, on October 10, Tesla showcased its new Optimus dexterous hand at its “WE, ROBOT” event, highlighting significant advancements in human-machine interactionBy November 28, the company celebrated a landmark improvement with the unveiling of its second-generation Optimus robotic arms, which now boast double the degrees of freedom compared to the prior versionDomestically, the robotics momentum has not slowed; between October 14-18, Kepler introduced the K2 humanoid robot, while on October 24, Zhongqing Robotics released its full-size humanoid robot, SE01. By November 16, Xpeng Motors presented its AI humanoid robot, dubbed Iron.

Significantly, the most seismic news came from Huawei, which reached an agreement with 16 enterprises, including Leju Robotics and Zhaowei Electromechanical, on November 15 to collaborate on various application scenarios

By November 19, reports indicated Huawei had established a subsidiary in Dongguan with a staggering investment of 72 billion RMB to build an industrial park, aiming for trial production on a meaningful scale by 2025. This announcement ignited market excitement surrounding Huawei’s robotics ambitions, leading to stock peaks for relevant companies on the industrial chain—TOSY surged by 20% while Efut and Keli Sensor rose by 17% and 10%, respectively.

Such a wave of industrial activity indicates a well-founded expectation for mass trials of humanoid robots by 2025, thereby positioning companies involved in robotics for a substantial evaluation round.

The value within the robotics industry is categorically unequal across its supply chains, spanning from B2B to B2C applications and ranging from factory automation to home assistance and elder companionshipAccording to predictions from GGII, the market for humanoid robots in China is expected to reach approximately 2.158 billion RMB in 2024, expanding to nearly 38 billion RMB by 2030, with a compounded annual growth rate of over 61%. The expected volume of humanoid robots sold in China could surge from around 40,000 units to over 271,000 in this time frame.

The industry supply chain for humanoid robots generally includes motion modules, control systems, perception modules, dexterous hands, and batteries

A breakdown of Tesla’s Optimus production costs reveals that structural components account for 17% of the overall cost, torque sensors and rolling-ball screws each represent 14%, while harmonic reducers comprise 13%, and various motor types contribute to the remaining percentagesCurrently, components like screws and torque sensors command a lower maturity in their respective markets, present high barriers to entry, and have low domestic production rates, signifying untapped opportunities for domestic developers.

In the realm of screws, Tesla’s robots utilize planetary roller screws essential for controlling movement across joints and limbs, signifying the “soul” of robotic motion in terms of precision and reliabilityMarket leaders such as Schaeffler and SKF dominate the global roller screw market, but local players like Hanjian Machinery and Nanjing Technology are also making strides, alongside emerging enterprises like Best and Hengli Hydraulic looking to develop their foothold.

Torque sensors, capable of detecting and converting force and torque into usable output signals, require varying degrees of complexity

Global leaders in the torque sensor field include domestic companies like Yuli Instruments and foreign counterparts such as ATIThe secondary market is populated by companies like RAYLE and KWL Tech, with Keli Sensor primarily focusing on one-dimensional sensors while increasingly pushing the envelope on six-dimensional sensors.

While reducers are vital for rotational joints in robotic arms, their technical path still presents considerable uncertaintyTesla employs harmonic reducers; however, most domestic robots favor planetary reducers insteadMarket data from 2021 indicates that Japanese company Harmonic Drive possessed 82% of the global market, followed closely by Chinese firm Gree Harmonic with a 7% share, with several domestic players quickly gaining ground.

The robotics market landscape is still subject to shifts as mass production approaches, meaning potential investment opportunities could arise from the volatile dynamics in different sub-markets.

Huawei and Tesla represent two contrasting approaches within the Chinese humanoid robotics landscape

Huawei has invested in AI and robotics for over seven years, securing patents in various segments such as robotic arms and human-machine dialogueTheir strength lies largely in core technologies such as operating systems and artificial intelligence, alongside chip development.

This November, Huawei’s collaborations with 16 firms underscore their strategy to synergize and empower partners across the robotics spectrum—from hardware to processing technologiesThis strategy is akin to Huawei’s previous engagements in the electric vehicle sector, propelling brands like Seres and BAIC into high-quality production.

Thus, Huawei promises to assume a locomotive role within the entire robotics supply chain, leaning on its established tech expertiseConversely, Tesla is establishing strong gravitational pulls within its collaborating partners, asserting its dominance in the innovation landscape.

The essential question then becomes: who stands to gain more from the development of humanoid robots—Huawei or Tesla? A subjective assessment leans towards Huawei, considering their agility in iterating product technology and efficient execution in deployment.

Interestingly, in the autonomous driving domain, Huawei, despite facing strong competition from Tesla, reportedly eclipses Tesla’s Full Self-Driving (FSD) capabilities

CEO Yu Chengdong confidently stated that their system outperforms Tesla’s, especially in configurations without the addition of laser radar.

While once unassailable in the electric vehicle domain, Tesla is now grappling with challenges in product iteration and deployment effectiveness, largely relying on older models like the Model 3 and Model Y, witnessing a decline in global market share.

As the humanoid robotics sector inches towards its accelerated growth phase, both Huawei and Tesla-aligned supply chains stand to benefitHowever, given their growth trajectories and strategic positioning, there are compelling reasons to focus on Huawei’s capabilities more closely.

Since late September, the humanoid robot sector has seen a significant upsurge; many associated companies have witnessed their valuations double, leading to potential speculative bubblesMoving forward, share price volatility could pose challenges, but once serious production begins in 2025, high-performing manufacturers and suppliers will again attract market waves, presenting ample opportunities for astute investors.