One Wall Street analyst sees 33% upside for Nio stock

China is the world's largest auto market and an early adopter of electric vehicles (EVs). But competition is intensifying, and one Wall Street analyst says that could make Chinese EV makersNeo (NIO) (NYSE: NIO)of investors is even more painful.

Eugene Hsiao, an analyst at Macquarie Equity Research, is not bullish on Nichio's stock, but he thinks it has fallen too far. He has a "Neutral" rating on the company, but sees the stock price rising to $5 in the next 12 months. That would give investors a gain of 30% from recent levels.

Increased demand and competition for electric vehicles

The company's shares have fallen as demand for electric vehicles has slowed in China and elsewhere, and so far this year Nio's shares are down nearly 60%. So far this year, Nio's shares are down nearly 60%, and investors are concerned that the timing of the drop in demand doesn't bode well for smaller EV makers like Nio, which are seeing an increase in competing products.

Mr. Siu believes that China's EV market is mature enough that successful EV manufacturers must now open up a larger market, focusing on lower-priced vehicles. He concludes that "China's EV market has now passed through the early adopter segment of the S-curve and has firmly entered the mass adopter segment. This change means that previously small pure EV startups need to chase sales in the mass market.

Nio's management is also likely to believe this. The company plans to launch a new mass-market sub-brand next month. If it's in line with other Chinese EV makers launching lower-priced brands, the company could offer cars for as low as about $20,000 USD.

However, the analyst is more bullish on other Chinese EV makers, especially those that offer hybrids. That's why he doesn't recommend that investors buy Neo now. But Niono's battery-switching and other technologies also have a competitive edge. And the analyst still thinks that Nio's stock could yield substantial gains in the future.

If investors think Nio can successfully add a low-priced brand, then buying Nio shares now would be a good option.

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Howard Smith owns shares of Nio. The Motley Fool holds a stake in Nio and recommends Nio. The Motley Fool has a disclosure policy.

A Wall Street Analyst Says Nio Stock Has 33% Upside was originally published by The Motley Fool.