Foundation Models Meet the Physical World

The next phase of AI is embodied, models that act in the physical world, and it plays to China’s deepest structural strength: it builds the hardware, at scale, where the components are made.

The ambition is state-directed. In November 2023, China’s industry ministry issued guidance naming humanoid robots “a new engine of economic growth,” with an explicit goal of mass production by 2025 and world-leading capability by 2027.^[1] The industrial base beneath that goal is already dominant: China installed 295,000 industrial robots in 2024, about 54% of all global installations, and its operational stock passed two million units, with domestic makers taking a 57% share of their home market.^[2]

China installs more industrial robots than the rest of the world combined. Embodied AI is a home game.

The price collapse

The disruption is cost. Unitree became the world’s leading humanoid seller in 2025 with roughly a third of global sales; its average selling price fell from about $85,000 in 2023 to around $25,000 in 2025, with an entry model marketed near $16,000.^[3] These are not lab demonstrators. UBTech began mass production of its full-size Walker S2 in November 2025, with cumulative orders past $110 million and units deploying on production lines at BYD, Geely and Foxconn.^[4]

The economic logic follows the bottleneck. Once a foundation model makes the “brain” broadly available, the scarce, defensible input becomes the “body”, the actuators, harmonic reducers, sensors and motors, and the manufacturing to make them cheaply at volume. That is a supply-chain contest, not a software one, and it is the contest China’s manufacturing base is built to win. The investable question shifts accordingly: away from which lab has the cleverest control policy, toward which maker reaches durable unit economics first and which component suppliers become the indispensable layer beneath every humanoid, whoever builds it.

Why this is on our list

Foundation models made the “brain” of a robot suddenly tractable. The bottleneck moves to the body, actuators, sensors, motors and the manufacturing to make them cheaply, which is precisely where China’s supply chain is deepest. The investable question is less which lab has the best control policy than which maker reaches durable unit economics first, and which component suppliers become the component suppliers that arm the humanoid build-out. That is the layer we map.