What Just Happened to NIO Stock — and What Investors Should Do About It

Chinese peers Xpeng (XPEV) and Li Auto (LI) rose about 9% and 12% respectively. Tesla (TSLA), the $400 billion EV behemoth, rose 1.3%. The S&P 500 and Dow Jones Industrial Average, for comparison, rose 0.2% and 0.1%, respectively.

Deutsche Bank analysts Edison Yu pins a lot of the gains on two analyst upgrades. J.P. Morgan and Citigroup both raised the shares to the equivalent of Buy. But Yu says there are other reasons for improving sentiment.

For starters, he notes that CEO William Li recently said production capacity could hit 150,000 by the end of 2021. That implies a lot of growth if the company can sell all the cars it can make. NIO delivered about 12,000 vehicles in the third quarter.

What’s more, Chinese EV sales were strong in September, totaling about 100,000 vehicles. That is good for NIO and the other Chinese EV makers, as well as for Tesla.

Looking ahead, he thinks shares might be weak if Tesla cuts the price of its Model Y crossover. Still, he remains positive on the stock and predicts “robust demand for the foreseeable future…driven by the company’s new EC6 SUV coupe, 100 [kilowatt-hour] battery pack option, and BaaS rollout.”

BaaS is short for battery as a service. NIO is selling cars, essentially, without the battery and renting the battery to drivers. It cuts the initial cost of purchase. And the batter rental is like buying gasoline.

Yu rates shares Buy and has a $26 price target. That is below where the stock is trading, but he kept his Buy rating on the stock anyway. It is hard, after all, to keep up with EV shares. NIO shares, for instance, are up about 53% since Sept. 4, the day before Yu initiated coverage with his Buy rating. At the time, the stock was trading at $17.97. Shares closed at $28.48 on Friday.

NIO shares were taking a breather on Monday, down 2% at $27.91 early afternoon. Year to date, they have gained close to 600%.

Write to Al Root at allen.root@dowjones.com