UBS says self-driving cars could become a $100 billion market in China — and names stocks to play it

Published Tue, Nov 22 20228:24 PM EST

The world is embracing the electric vehicle revolution, but UBS says autonomous driving is set to outshine even EVs in the auto space. "We expect autonomous driving to be the next technological revolution in the auto space, arguably a more significant megatrend than electrification with a more profound impact on the industry," UBS analysts, led by Paul Gong, wrote on Nov. 17. The investment bank said China has been a world leader in EV adoption, and now has the potential to also lead when it comes to self-driving cars. It cited China's large domestic market, high acceptance of autonomous driving, efficient supply chains, and supportive infrastructure among other factors. UBS estimated that China's potential autonomous driving-related market could reach $100 billion by 2030. As such, the Swiss bank said it sees "significant" investment opportunities in the autonomous driving space. It added that stocks in the sector had pulled back recently, making it a "good time to revisit this theme amid relatively undemanding valuations." Stock picks Tesla is among UBS' top picks to play the autonomous driving theme. The bank said Tesla's key assets include its "strongest" autonomous vehicle and machine learning know-how, as well as its fully connected fleet — the largest among its peers. The bank also likes Mercedes for its strong luxury focus and "relatively strong" autonomous vehicle technology. Mercedes has a partnership with semiconductor giant Nvidia to develop the next generation of the German automaker's in-vehicle computing systems. Mercedes is set to start deploying the new technology across its fleet in 2024. Chinese automaker Li Auto is another pick, for its "innovative features" that positions the company "among the industry's front runners" in human-vehicle interaction and autonomous driving, said UBS. Xpeng also made the list, with the bank describing the automaker as one of the "leading autonomous driving players in China." Further down the supply chain, UBS also sees other attractive opportunities, such as Chinese optical lenses firm Sunny Optical and Internet firm Baidu . In July, Baidu unveiled the Apollo RT6 — the sixth generation of its self-driving electric car built for ride-hailing. The vehicle is set to start operating on China's roads in the second half of 2023 under Baidu's self-driving robotaxi business.