What happened

After kicking off Wednesday on a positive note and popping by 2% in early morning trading, electric vehicle stock Nio (NIO -1.14%) shed all of those gains and then some. At the close of the session, Nio shares were down by 2.9%.

It seems investors are weighing the impact of rising competition on the Chinese automaker's prospects and finding it worrisome.

So what

Nio's chief rival Tesla (TSLA -1.41%) is firing on all cylinders. After Tesla bagged an order for 100,000 electric vehicles from rental company Hertz earlier this week, it was back in the news again Wednesday after Hertz struck a deal with Uber Technologies to rent it 50,000 Tesla EVs. Although that development built on Hertz's previous order, it reflects the massive potential of the EV industry and the unmistakable traction that Tesla has already gained within it. It's also racing ahead in Nio's core market of China.

A person analyzing falling stock price charts on computer screens.

Image source: Getty Images.

On Wednesday morning, General Motors (GM -1.42%) CEO Mary Barra told CNBC that the auto giant could "absolutely" catch up with Tesla on EV sales by 2025. In June, GM announced an ambitious goal of selling more than 1 million EVs worldwide by 2025, backed by investments worth $35 billion in EVs and autonomous vehicles over that period.

Now what

EVs are a hot market right now, and this is just the start. It's therefore unsurprising to see competition intensifying as nearly every automaker strives to get a piece of a market segment with exponential growth potential.

Does that mean Nio will be edged out? I don't think so.

In a short span of time, Nio has established itself as one of the top luxury car makers in China. It delivered more vehicles last quarter than it ever had before, recently began selling in Europe, and is set to launch its first electric luxury sedan, the ET7, in China as well as Norway in 2022 even as it prepares a blueprint for low-priced models to target the mass market in China. Nio's battery-as-a-service program also gives it an edge over rivals, especially among cost-conscious consumers.

So while Tesla's wins may rattle Nio investors momentarily, the Chinese automaker is a long-term growth story and looks like one of the most promising EV stocks right now to buy on a dip.