What happened

Shares of Chinese electric-vehicle maker NIO (NYSE:NIO) opened lower on Friday, after a Goldman Sachs analyst urged caution and downgraded the stock in a new note.

As of 10 a.m. EDT, NIO's American depositary shares were down about 9.5% from Thursday's closing price.

So what

In a new note released early on Friday, Goldman Sachs analyst Fei Fang cut his rating on NIO's shares to sell, from neutral, while maintaining his previous price target of $7. 

Fang's reasoning for recommending that auto investors sell NIO's shares is simple: After an 89% rally in the past month, with no significant changes to the company's story, he thinks that NIO's current share price reflects "over-optimism." (My take: He's probably right.) 

NIO's ES8 and ES6 electric SUVs parked in front of a NIO store

Image source: NIO.

Notwithstanding his sell recommendation, Fang isn't exactly bearish on NIO's long-term prospects. The analyst, who had a buy rating on NIO's stock just six weeks ago, wrote that the long-term investment case rests on structural forces in China's vast auto market that point to the growth of premium brands and electric-vehicle sales generally, as well as NIO's specific appeal as "China's first home-grown high-end passenger-vehicle brand." 

Simply put, in Fang's view, the company has the potential for a bright future, but the stock price has risen beyond levels that are justified by the near-term fundamentals. 

Now what

It will be interesting to see how NIO's senior executives respond to the rapid run-up in the company's stock price over the last several weeks. While the run-up was probably triggered by NIO's very strong second-quarter sales report, it might be time for the company to temper investors' expectations.

We'll see what happens when the company reports its second-quarter earnings results, likely sometime next month. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.