UBS analysts say that, benefiting from the rapid transition from a “fully managed” model to a “semi-managed” model in the US market, coupled with measures such as expanding overseas warehouses and exploring new markets, Temu has effectively mitigated tariff impacts. The bank believes that Temu could achieve quarterly breakeven by the end of 2026, and that PDD Holdings’ current stock price does not fully reflect its intrinsic value, especially the growth potential of Temu.
Amid the volatile trade situation earlier this year, the market was once concerned about Temu’s growth prospects, however, Temu has demonstrated strong resilience through the successful transformation of its business model and steady operations, said UBS analysts Kenneth Fong and Sardonna Fong in a recent report.
This resilience is mainly attributed to Temu’s rapid shift from a “fully managed” model to a “semi-managed” model in the US market. The report notes that the new model transfers more responsibility for logistics and tax compliance to merchants, effectively addressing tariff pressures, and at the same time, Temu’s proactive expansion in non-U.S. markets has helped offset part of the impact.
Based on Temu’s recovery momentum, UBS raised PDD Holdings (Nasdaq: PDD)’ target price from $176 to $198 and reaffirmed a “buy” rating. The bank believes the market has not fully priced in Temu’s long-term growth potential.
Semi-Managed Model Mitigates Tariff Impact
In response to the challenging external environment since 2025, Temu’s core strategy was to decisively adjust its business model.
The report notes that Temu quickly shifted its focus in the US market from a fully managed model to a semi-managed model. Under the semi-managed model, merchants are responsible for logistics and warehousing, while Temu retains control over operations and pricing.
The key advantage is that it changes the basis for tariff calculation: tariffs are levied based on the merchant’s product cost rather than the retail price, effectively reducing the tariff’s impact on final prices from 54% to 13–18%. According to UBS estimates, by Q2 of 2025, Temu’s US GMV composition had reversed from 70% fully managed in the second half of 2024 to 70% semi-managed.
In addition to the model transition, Temu has taken multiple measures to mitigate risks, including expanding overseas warehouses and exploring new markets.
The report shows that as of mid-2025, Temu had 110 and 10 warehouses in the US and Europe, respectively, ensuring delivery timeliness by pre-stocking popular products, and meanwhile, Temu accelerated its expansion into non-US markets such as Europe and Latin America to diversify geopolitical risk.
Long-Term Value Comes From Supply Chain Efficiency
UBS believes that the market may be overly focused on geopolitical risks while overlooking the long-term value Temu creates through improved supply chain efficiency.
The report emphasizes that Temu’s low-price advantage is not merely reliant on platform subsidies or temporary tax incentives but is built on sustainable efficiency gains, allowing it to maintain a 10–15% price discount compared to competitors.
This efficiency stems from its unique business model, which effectively captures and redistributes value in the following areas:
- Logistics and platform efficiency: By consolidating orders and centralizing procurement of logistics services, Temu can fulfill orders at lower unit costs.
- Product procurement efficiency: The platform controls pricing and traffic allocation, using an internal bidding mechanism to select the lowest-cost merchants while eliminating middlemen.
- Squeezing middleman profits: Temu’s model compresses the profit margins of traditional trading companies and distributors, passing this value to consumers.
The report analyzes that Temu’s semi-managed model is expected to achieve a high single-digit operating margin (as a percentage of GMV) by 2029, significantly higher than PDD’s domestic e-commerce business, which has about a 3% margin.
PDD’s Stock Price Does Not Fully Reflect Temu’s Potential
Despite the effectiveness of strategic adjustments, Temu will still face short-term financial pressure. Due to expansion into new markets with relatively low margins, lower monetization under the semi-managed model, and marketing investments in new markets, UBS expects Temu’s operating loss to widen from RMB 32 billion in 2024 to RMB 50 billion in 2025.
However, the long-term outlook remains optimistic. As Temu matures across markets, accelerates monetization through advertising, and improves operational efficiency, Temu could achieve quarterly breakeven by the end of 2026, UBS estimates.
The bank expects Temu’s operating margin (as a percentage of GMV) to rise to 6% by 2029, higher than the market consensus of 4%. In terms of GMV, the bank forecasts that Temu will reach $75 billion and $90 billion in 2025 and 2026, respectively.
UBS believes that PDD’s current stock price does not fully reflect its intrinsic value, especially Temu’s growth potential. The report notes that excluding Temu, PDD’s core domestic business has a projected 2026 P/E ratio of only 9x, comparable to its competitors Alibaba and JD.com, whose ratios are 8–11x, while Pinduoduo’s domestic business growth is faster.