Humanoid robotics: A deep dive into automation’s next frontier

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Kelly Wen: Welcome to Research Recap on J.P. Morgan's Making Sense. My name is Kelly Wen, head of Hong Kong and China Equity sales at J.P. Morgan. Today we're going to dive into the world of humanoid robots and how the growing robot industry, particularly in China, is transforming the future of automation. I'm joined today by Karen Li, our head of Hong Kong Equity Research and Asia Infrastructure, Industrials and Transport Research who has been taking a close look at some of the key developments in the humanoid robot industry in China, and how it is poised to gain significant growth momentum, potentially mirroring the success scene in the new energy vehicle space. Karen, thank you so much for joining me today.

Karen Li: Thanks for having me here.

Kelly Wen: So Karen, let's start with some basics first. Could you give us a brief overview on firstly, what do we mean when we say humanoid robotics? And secondly, why has this industry attracted so much investor interest recently?

Karen Li: Sure. So by definition, humanoid robots will look human. So this is why this topic has been very sensational. People are thinking about humanoid robots, which is going to walk into our family, speak to us, be our friends, playing chess, be our teachers, and so on. In the near term, the humanoid robots, however, may not exactly look like human. Some of them are going to be, for example, like a dog, or a human upper body. But with wheels below to facilitate in the movement. What humanoid robots are going to do they are designed to mimic human actions and also interactions. However, the near term, in terms of the application cases, they're likely to be those which you are already familiar with in the factories as well as warehouses replacing what we already have, such as cobots, which is also known as collaborative robots, as well as AGV, automated guided vehicles, and industrial trucks, industrial foot, legs. All these are currently being deployed in factory, warehouses, logistic parts, and so on.

Kelly Wen: How about the demand side of things then? What are some of the primary demand drivers for humanoid robots, and how is that going to address the current labor challenges that many people are talking about?

Karen Li: Yeah, sure. So as mentioned, I think for the first five to 10 years from now, we do expect humanoid robots to be more like, working in factories, hospitals, like dangerous places which human beings wouldn't wanna be. So we expect them to take all the labor shortage, perform dangerous task, and enhance our productivity. Examples would be having other robots, dealing with dull, boring jobs, which typical workers probably will find is too boring to do and being paid at minimum wages. Moving the box around in warehouses is another example. And then I think in later stage, of course, the demand drivers, will become more compatible to us. Imagine in the world that you will have a robot for each one of us talking to us, and then potentially be our teachers, be our, for example, doctors replacing a real person, and in the service industry and so on. But that might be a say like 10 years away. Also, there's definitely a lot of demand user case. Near-term, medium-term, longer-term, we do expect to be a very different drivers for that. The curve as mentioned for the first two to five years, it will be more like significant strides in terms of, the factories, warehouses. But a longer term it will be in our family, in schools and so on, doing what human beings are doing, but a lot more interactive and make sure, I think it will be more personalized experience.

Kelly Wen: Right. It does sound like they will be quite valuable for industries that are seeking to maybe optimize productivity and even safety, like you mentioned. So you also mentioned just now a little bit about adoption curve. And maybe you can elaborate more on what that might be like, what the roadmap might be like, and to achieve, what do you think the size of the total addressable market might be for this industry?

Karen Li: Sure. The size of humanoid robots, based on a few industry leaders such as Tesla and also XPeng and so on, they're looking at the size of five to 10 billion humanoid robots in the next 10-to-20-year time. That essentially means there will be one robot for each human being. Because the current population right now stands at around 8 billion. In terms of the demand case, we do expect to see a very rapid development. We are going to start with about a thousand to be made by Tesla Bots, but I think globally, including those made in China, we are likely to see 10,000 units, as the starting points this year. And then from here, we expect to see 10 times growth each year for the next few years. And then in 2030, we are likely to see a total of 200,000 units, robots, being made globally. And that would translate into penetration rate of about 4%. So it's going to be a very rapid development in the first few years as this is going to look like, I think what a smartphone, EV has gone through in the first few years of development.

Kelly Wen: Wow. 200,000 in five years. That's quite impressive. Now, why don't we look at China's role more specifically here. I'm sure you have seen the news China hosted the world's first humanoid half-marathon recently in Beijing. There are quite a number of Chinese companies developing some really impressive robots. Several EV companies also indicated that they will join the humanoid robotic race as well. Can you talk about the key factors that position China as a leader in this field, and what might accelerate a humanoid robotic adoption and growth even further?

Karen Li: Hmm, indeed. So in the humanoid robot space, we do see a potential competitive landscape similar to what is like today for the EV where you see a number of Chinese leading company competing against the American leading company for the tough spots. But doing the process, the ability to drive down costs, to make more user-friendly, and then advanced car models to help transform our experience could be, I think, the win-win situation. So what China is strong at, China is known as the world factory, due to its vast manufacturing capability. It is a very strong in a number of industry which are relevant to the development of humanoid robots, including the factory automation. As mentioned, industrial robots is going to be initial use case for humanoid robots, as well as EV because the ability for the pilotless, the autonomous driving is also relevant in sense of helping the humanoid robots move around. And then lastly but not least, mechanic industries including the reducers the ball screws the parts and so on. These are what China is strong at, making the parts very cheap, that is very critical in the initial stage in terms of driving down the production cost to make the prices more compelling to speed up the adoption curve. On the other hand, what U.S. is strong at, of course, is in terms of innovation particularly on the AI chips, LLM sensor side -- that's in this, what I think in comparison, China is still weak at. So in the initial years, we do expect to see a more like a collaboration. You're going to see some of the Chinese, I think part makers to be working for example, with Tesla. Some of the U.S.-based human robot company might also be working closely with Chinese robotic company to make the prototype turning into a real product.

Kelly Wen: Now let's bring it all back to investor interest here, Karen. What is your outlook for investing in the humanoid robotic sector from here? And looking at the next five years or so, what would you foresee as the main challenges and opportunities?

Karen Li: Here today we have a lot of conversations with institutional investors who are definitely taking a more serious interest in looking for investment ideas in this space as compared to the last two years. Humanoid robot is not a new, new thing. In fact, actually it was first talked about back in 2020s. But since beginning of this year, I would definitely see more serious interest both in terms of the secondary markets as well as the primary investments. So I think near term from our side what investors are looking for are the upstream or the part component makers because they think it is likely to be a easier way to gain exposure because of the scalability in terms of the revenue growth potential as well as I think more importantly the potential profit question coming from these initiators. So I think there's, I mentioned also a robotic company currently listed in Hong Kong. That's definitely getting a lot of interest as well, because that is the only humanoid robot Chinese company currently listed called UBTECH, we currently don't cover.  But on the other hand, there are a lot of other I think very interesting humanoid robot company, which is yet listed. It's in the pipeline. Some of them might not be listed eventually but they also get a lot of investor interest. And then of course, as you know, some of these initiatives have been in sitting in EV or home appliances company, they might eventually be spun off for a separate listing. All these I think is going to happen I think over the next say like five to 10 years. But near term, in terms of exposure the investors that we're speaking to are looking at the existing industrial company, the EV parts related company, who are having the dialogue, or even contracts with the customers for making humanoid robots. And these are likely to be a revenue and also profit creative in the coming few years as a way to gain exposure.

Kelly Wen: Well, thanks for joining me today, Karen. This is certainly an area that we will be paying close attention to over the next few years. Lots of great points for us to take away and think about, and I look forward to seeing you at the J.P. Morgan Global China Summit, where we might be seeing some of these exciting humanoid robotics on stage as well. And thank you to our listeners for tuning in to another episode of Research Recap.

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