• WeRide’s stock surged by more than 100% and its market cap reached nearly $11 billion—after Nvidia disclosed a stake in the company. 
• Modest revenue and steep losses raise questions about WeRide’s ability to turn a profit. 
• The company’s market valuation appears inflated relative to its financial performance. 

Stock in WeRide (WRD) surged more than 80% on February 14 after Nvidia (NVDA) disclosed it owned a stake in the company. The rally continued this week, propelling WeRide’s market capitalization to nearly $11 billion. While Nvidia’s backing undeniably lends credibility, it also raises a crucial question: Can WeRide’s financials justify such an inflated valuation?

As autonomous driving technology evolves, WeRide stands at the forefront of this rapidly expanding industry. But with modest revenue and a hefty valuation, is the stock priced for the future, or simply caught up in the hype? Let’s look at WeRide’s role in autonomous driving and determine whether its fundamentals align with the market’s enthusiasm.

A growing footprint in autonomous driving

WeRide, a rising star in China’s autonomous driving landscape, is reshaping the future of transportation. Since its founding in 2017, the company has been crafting a diverse fleet of self-driving vehicles—from robotaxis to robosweepers—each powered by cutting-edge AI. With a vision of revolutionizing urban mobility, WeRide is not just following the trend but instead leading the charge toward smarter, safer and more sustainable cities. As China accelerates its push into autonomous vehicles, WeRide is positioning itself as a key player in the next wave of transportation innovation.

In China, WeRide competes with a fierce cohort of rivals in the autonomous driving sector. It faces off against major domestic players like the Baidu (BIDU) Apollo, Pony.ai and even Tesla (TSLA), which has been ramping up its own autonomous efforts in China. Internationally, WeRide’s competitors include well-established names like Waymo , which has been testing and rolling out autonomous taxis in the U.S. for several years. In this highly competitive market, WeRide has focused on real-world deployments, with its self-driving vehicles already undergoing trials and commercial pilots in 30 cities in seven countries. This hands-on approach not only equips the company with valuable data but also bolsters its credibility on the global stage.

Looking at the broader market, the autonomous driving industry looks poised to grow rapidly in the coming years. In China, for example, the government has been working hard to create an environment conducive to self-driving. And because of rising demand for electric vehicles (EVs) and autonomous shuttles, WeRide is certain to participate in the transformation of urban transportation, both at home and abroad. As cities around the world seek to alleviate congestion and improve air quality, WeRide’s vision for AI-powered mobility could play a pivotal role in shaping the future. 

In October 2024, WeRide made its U.S. debut, listing on the Nasdaq and raising $440 million through its initial public offering (IPO). This signaled the company’s intent to scale its operations and become a force in the international market. WeRide’s IPO performance was strong, with shares rising 19% on the first day of trading, reflecting enthusiasm for the company’s future. Much of this excitement is also driven by partnerships with tech giants like Nvidia, which has supported WeRide’s development since 2017. 

Rising costs weigh on financials

WeRide’s recent Q3 earnings report reveals a mix of progress and challenges as the company develops and commercializes its autonomous driving technology. The company’s total revenue for Q3 reached $10 million, a modest decrease from the same quarter last year. While this decline may raise concern, the company is in a significant expansion phase. It’s channeling new capital into product development and expanding its autonomous fleet, which reflects its long-term strategy for scaling operations.

Building on its growth strategy, WeRide has shown strong performance in product revenue, which surged to $2.1 million in Q3, up from just $0.1 million during the same period last year. This growth shows the company’s ability to scale its operations, particularly with Robosweepers now being deployed for urban sanitation and street cleaning. However, the company faced a setback in its services division, where revenue fell from $10.4 million to $7.9 million year-over-year. That decline was attributed to changes in its Advanced Driver Assistance Systems (ADAS), but management remains optimistic and expects this segment to rebound as new contracts take effect this year. 

Despite these challenges, WeRide continues to solidify its leadership in the autonomous driving sector with impressive technological advances and expanding market presence. The company unveiled its next-generation robotaxi platform, the GXR, which leverages over 1,800 days of real-world operational experience. Equipped with cutting-edge autonomous driving systems, a state-of-the-art sensor suite and the powerful HPC 2.0 computing platform, the GXR strengthens WeRide’s competitive edge in the global autonomous vehicle market.

The company has also expanded its global footprint through strategic partnerships, such as its collaboration with Uber to deploy robotaxis on the Uber platform in the United Arab Emirates (UAE). This collaboration is expected to boost WeRide’s brand visibility and credibility, particularly in regions where autonomous vehicle adoption is rapidly accelerating.

Another challenge facing WeRide has been the rising costs associated with its rapid growth. Operating expenses for Q3 spiked to $128 million, driven largely by increased personnel-related costs as the company scaled its operations. Of particular concern was the nearly 50% year-over-year jump in administrative expenses. This surge in non-R&D costs suggests the company may need cost-control measures in the near future to ensure capital is deployed efficiently.

The company’s net loss for Q3 2024 was about $147 million, which was greater than the loss recorded in the same quarter last year. While this loss is a concern, keep in mind WeRide’s path to profitability will probably be gradual and will depend upon scaling its robotaxi fleet, optimizing operations and increasing revenue from both product sales and service offerings. Looking ahead, WeRide anticipates total revenue for the full year 2024 to be between $50 million and $55 million, which is on par with the previous year. 

An overextended valuation 

WeRide’s market capitalization skyrocketed last week after Nvidia revealed it owned 1.74 million shares in the company. While this disclosure undoubtedly fueled investor enthusiasm, it wasn’t a “new” investment. Nvidia has held a stake in WeRide since 2017, when the two companies formed a strategic partnership. The real catalyst is the timing of the disclosure. Following WeRide’s IPO in the fall of 2024, Nvidia’s previously owned stake became subject to public reporting requirements, which explains why this position was revealed only recently. 

Looking beyond the Nvidia stake, WeRide’s valuation metrics indicate the stock is priced at a considerable premium. The company’s Enterprise value to sales (EV/Sales) ratio stands at a staggering 180, far exceeding the sector median of 1.5. This suggests investors are paying a steep price for potential growth. Similarly, WeRide’s forward price to sales (P/S) ratio of 138 is well beyond the sector average of around 1.0, underscoring the substantial premium on the company’s projected sales. These elevated valuation multiples suggest much of WeRide’s potential upside may already be baked into its stock price, raising concern about potential overvaluation.

Despite a strong start on the market, WeRide has yet to attract much attention from analysts, with only three covering the stock since its IPO. All have rated the stock a “buy,” but the average price target of $21 per share is approximately 40% below WeRide’s current price of $35 per share. This significant gap resulted from a disconnect between the stock’s current value and analysts’ more conservative projections. The company’s modest annual revenue of $50 million to $60 million stands in stark contrast to its market cap, which has ballooned to nearly $10 billion. This discrepancy raises questions about the sustainability of its valuation. 

While WeRide offers a promising future autonomous driving, its valuation seems disconnected from its recent and projected financial performance. The stock’s massive rally following Nvidia’s involvement has brought increased scrutiny, and investors should consider whether the potential of autonomous vehicles justifies the premium on WeRide, especially at this early stage. The market may be pricing in too much, too soon, and a correction could be looming, particularly if the company’s growth in revenue doesn’t accelerate in the near future.

Nvidia doesn’t guarantee success

WeRide’s dramatic rise, sparked by Nvidia’s recent disclosure, certainly grabbed attention. But investors should be cautious about getting swept up in the hype. While this revelation could add some strategic weight to the company’s shares, it’s possible the chipmaker’s stake is about gaining influence in China’s autonomous vehicle market, as opposed to a clear endorsement of WeRide’s potential. 

The situation brings to mind Nvidia’s past moves with companies like SoundHound AI (SOUN), where an exit from the stock (also revealed in mid-February) resulted in a sharp drop in SoundHound’s value. While WeRide’s fate might not mirror SoundHound’s, the risk of getting caught in an overvalued market is real. Investors need to ask themselves: Does the company’s potential justify its price tag? 

WeRide still faces the uphill task of converting its groundbreaking technology into consistent revenue and profits. Until its fundamentals catch up to the hype, the valuation remains highly speculative. As a result, the case for a long-term investment in WeRide is tenuous at best, with the risk of a pullback looming large. For investors interested in the autonomous driving sector, one alternative could be Waymo—via shares of Alphabet (GOOGL)—which offers a more established player with stronger financial and technological backing.

Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.

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