American depositary shares of Chinese electric-vehicle maker NIO (NIO -6.44%) are rising today, up 14.9% as of 9:45 a.m. EDT, after a J.P. Morgan analyst upgraded the stock in a bullish note.
In a note released before the U.S. markets opened on Wednesday, analyst Nick Lai upgraded NIO to overweight from neutral, with a price target of $40, up from $14.
Lai wrote that the share of China's light-vehicle market held by "new energy vehicles" -- China's catch-all term for hybrids, fuel cell vehicles, and battery-electrics -- is accelerating and will quadruple by 2025. Lai sees that as a rising tide, driven to some extent by Tesla's recent emphasis on the Chinese market, that will lift many boats, including (and perhaps especially) NIO's.
Specifically, Lai expects NIO to be a long-term winner in the premium portion of the the "smart electric vehicle" segment, thanks to its strong products, relative financial strength, and backing by economic-development authorities in China's industrial Anhui province. (The analyst sees Xpeng as a potential mass-market leader in the same segment, with products slotted below NIO's upscale offerings.)
While NIO's stock has already run up sharply in 2020, Lai thinks its current valuation leaves room for "meaningful upside" over the next few years.
Auto investors intrigued by NIO's dramatic turnaround story won't have to wait too long for an update from management. The company is expected to report its third-quarter earnings in early November.