Friday saw generally favorable moves for stock market benchmarks, with only the Dow Jones Industrial Average (DJINDICES:^DJI) missing out on a continued rally higher. Investors are starting to get more comfortable with how 2021 is likely to play out on Wall Street, and as greater certainty about key issues emerges, many companies are feeling more confident about their prospects. As of 11:30 a.m. EST, the Dow was down 82 points to 30,959, but the S&P 500 (SNPINDEX:^GSPC) gained 7 points to 3,810, and the Nasdaq Composite (NASDAQINDEX:^IXIC) climbed 82 points to 13,150.

Tesla (NASDAQ:TSLA) has been in the headlines lately, as its stock has been downright unstoppable. Much of its promise comes from its leadership in the electric-vehicle space, but companies like NIO (NYSE:NIO) are seeking to challenge that dominance and move in on Tesla's turf. The tough thing for investors to figure out is whether smaller companies like NIO are rising because of their own prospects or simply because of the attention that Tesla is getting. Below, we'll take a closer look at these electric-auto stocks and their outlooks for the future.

Red NIO SUV on a concrete platform overlooking cityscape.

Image source: NIO.

Are NIO and Tesla joined at the hip?

It'd be easy for casual investors who don't follow Tesla and NIO to think that the two stocks simply trade in lockstep. On Friday, for instance, NIO climbed 9% while Tesla was up 8%. Over the past month, the returns are extremely similar as well:

NIO Chart

NIO data by YCharts.

When there's general excitement about the electric-vehicle industry, that sort of synchronous rise makes sense. For instance, a news item that is positive about the prospects for EVs writ large often sends stocks throughout the entire sector higher.

However, when you look at longer time frames, you can see how company-specific events can have a big impact on individual stock returns. For instance, look over the past six months:

NIO Chart

NIO data by YCharts.

You can see that the two stocks tracked each other pretty well until October. Then, NIO jumped out to a big lead. Tesla narrowed that gap somewhat in the excitement over its being added to the S&P 500 Index, but even that and its precipitous rise to start out 2021 hasn't been enough to catch up to NIO's even larger gains.

Why NIO stands on its own

What caused NIO to break out from the pack late in 2020 was its reaching a milestone in its growth. NIO manufactured more than 5,000 vehicles in October for the first time in any month, with upgraded production line capabilities paying off with greater efficiency. With so much demand for electric vehicles, production and delivery has been a major bottleneck for both NIO and Tesla, and it promises to be an issue with other upstart EV players as well.

Since then, NIO has made further gains. The company delivered more than 7,000 vehicles in December, doubling volume year over year. In just three months, NIO's newest EC6 coupe SUV managed to become its top-selling vehicle.

Even better, new vehicles are coming from NIO at a much faster pace than Tesla has achieved. Those following NIO expect to see a brand-new vehicle design as early as Saturday at the Chinese company's annual NIO Day event. It would be the first non-SUV in the NIO lineup, potentially pulling in an entirely new audience.

Expect the battle to continue

With Tesla moving more aggressively into the Chinese market and with its huge size advantage, NIO certainly has to fight hard to stake its claim to its share of the EV industry. But don't think for a minute that NIO's success comes solely from Tesla. If anything, what will determine NIO's fate will be whether it can pull away from Tesla and distinguish itself as a leader on its own.

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.