Chinese EV player Nio (NYSE:NIO) is a stock that is seeing some pretty significant selling today. Indeed, shares of NIO stock are down more than 5% at the time of writing.
Today, high-growth stocks have continued to sell off, in part due to recent comments made by Federal Reserve Chair Jerome Powell.
Additionally, NIO is a stock that has been mired by its own concerns of late. Recently, I covered why a chip shortage has been a major cause for concern for NIO investors.
That said, some analysts are bullish on the EV space in general. Specifically, analysts at Wedbush released an interesting research note on the EV sector. As a key player in the global race to electrification, NIO stock is an interesting choice for investors seeking growth.
Here’s more on why the note interests me.
Massive Opportunity Comes With Volatility for NIO stock
A risk-off trade broadly appears to be taking hold in recent weeks. Additionally, the market appears to be attempting to digest information around less-than-linear growth in the Chinese market. As previously mentioned, chip shortages have been another negative short-term catalyst for companies like NIO.
However, analysts at Wedbush believe that the electrification trend has legs. Really strong legs. Indeed, it’s easy to see we’re in the early innings of a transformation in a sector that has been relatively stagnant for decades.
Thus, the argument Wedbush is making in its note is: The party is just getting started. The company expects the total EV opportunity to approximate $5 trillion over the next decade. That’s a sizable market, perhaps larger than many investors today have thought possible.
Additionally, Wedbush appears to be bullish on global pent-up demand relative to a low EV penetration rate of only 3% globally today.
Indeed, if green energy incentives are brought back due to the recent political shift in the United States, the EV sector could get a major shot in the arm. American auto manufacturers are shifting their focus toward EV production. Thus, this accelerating sector-specific shift is encouraging to EV investors today.
That said, this accelerated growth is unlikely to materialize without volatility. Wedbush’s advice? “Buckle the seat belts.”
The Chinese Market Is Key for Global EV Growth
Another key thesis from Wedbush’s note centers on the importance of the Chinese market to global EV auto demand.
NIO’s positioning as the “golden EV child” of China is certainly a focal point for investors. Wedbush believes China’s EV growth could blow past expectations through this year and next. A significant amount of political support has continued in China for continued green investments in sectors like EVs.
Wedbush assigns a trillion-dollar market cap expectation for NIO rival Tesla (NASDAQ:TSLA) because of this opportunity. However, I think investors would be remiss to ignore NIO. After all, Nio is China’s poster child in the EV sector. Accordingly, Chinese government support for growing its own industry is likely to be a huge catalyst for this company.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
