Shares of Chinese electric-vehicle maker NIO (NIO 5.66%) jumped on Tuesday after a key Wall Street analyst said that the company could become the "next iconic auto brand," at least in China.

Is he right? Let's take a look

Does NIO compare with Tesla in China?

Deutsche Bank analyst Edison Yu originally initiated coverage of NIO on Sept. 8 with a buy rating and a $24 price target. In a new note on Sept. 29, Yu wrote that investors had pushed back on his initial rating, saying that the company's brand doesn't draw the levels of excitement and loyalty that Tesla and the German luxury brands enjoy with Chinese consumers.

Yu acknowledged that there's some truth to that. But, he said, NIO is still a new company, and he believes that perceptions of its brand are trending in the right direction. 

Yu said that there's "compelling evidence" that growing numbers of consumers see NIO as a high-quality premium brand with best-in-class technology and customer service. He noted that 62% of NIO's customers -- a high rate -- were referred by other customers, and that it scored highly against major brands in a recent favorability study. 

"As [battery-electric vehicle] adoption increases and word of mouth spreads, we believe NIO can take material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services," Yu wrote.

A blue NIO EC6, a sleek upscale electric crossover SUV with a coupe-like roofline.

NIO began shipping its latest model, the EC6 crossover, earlier this month. Image source: NIO.

Yu feels that, while NIO might not yet be on Tesla's level, it's the leading company in the so-called "fab four" of upscale Chinese electric-vehicle makers, a group that includes NIO, Xpeng, Li Auto, and privately held WM Motor. Yu maintained his buy rating and his $24 price target for NIO's shares. 

Could NIO really be the next iconic auto brand?

NIO has come a long way in the last year. The company has overcome quality concerns, including a costly recall, a severe cash crunch, and the nationwide shutdowns amid the COVID-19 pandemic earlier this year. Now, it has plenty of cash in the bank and growing sales -- and a growing sense among auto investors that CEO William Bin Li and his team have the company headed in a very good direction.

NIO's vehicles have attractive designs, long lists of high-tech features, good range, and some appealing twists, including a fast-growing network of automated battery-swap stations that can "recharge" a NIO in about 3 minutes -- and a batteries-by-subscription service that lowers the initial cost of purchase. The company has put a heavy emphasis on customer service, going beyond the usual auto-company experience with brick-and-mortar centers that are meant to serve as gathering places for enthusiast owners.

A NIO ES8 SUV inside a NIO Power battery-swap station.

NIO's automated battery-swap stations can "recharge" a vehicle in about 3 minutes. Image source: NIO.

NIO still has a long way to go, of course. For starters, it has yet to deliver more than 4,000 vehicles in a single month (though it might get there in September.) It still doesn't have its own factory up and running -- it's paying another automaker to manufacture its vehicles, an arrangement that, if nothing else, eats into its margins. 

The upshot: There's risk, but good things are happening here

All that said, I think there's a lot for auto investors to like here. NIO is still small enough that it's best to think of it as a speculative investment (don't load the boat, in other words). But I think the company has shown us enough with its progress over the last six or seven months to have earned some confidence that it will continue to execute well -- and if it does, it should win a nice share of China's upscale EV market as that market grows over the next few years.