A Reuters report that Nio (NYSE:NIO) plans to build a factory making mid-market cars for export to Europe could ignite NIO stock today.

Nio is known as a luxury brand, competing directly with Tesla (NASDAQ:TSLA) in China and, increasingly, in Europe. Its current cars cost approximately $1,300 to lease in Europe, and offer half-hour “battery swaps” to maintain their range.

The new factory would produce cars under a new brand.

The Missing Middle

Tesla’s success building high-margin luxury cars and controlling its supply chain caused most other car makers to follow its lead. One result is the average new car now costs nearly $45,000. The “mid-market” on which high volumes are based is underserved.

BYD (OTCMKTS:BYDDF) now occupies this space in China, selling $32,800 vehicles with less range and fewer electronics, but enough quality to satisfy middle class consumers. Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) vice chair Charlie Munger calls BYD’s lead over Tesla in this area “almost ridiculous.”

If Nio can replicate BYD’s success in Europe it would transform the market. A mid-market brand would do what Chevrolet did for General Motors (NYSE:GM) in the middle of the last century: create scale. Cadillac was always GM’s luxury brand, providing bigger profits than Chevy ever could. But Chevy provided the volumes that made GM dominant.

The pending deal also complicates Nio’s relationship with state-backed JAC Motors, the contract manufacturer attached to it in the 2020 government bailout. The Nio plant, if built, could make it less dependent on JAC.

JAC also has a joint venture with Volkswagen (OTCMKTS:VWAGY) to make smaller cars. Since electric cars have fewer moving parts than those powered by gasoline, contract manufacturers like JAC and Foxconn are entering the market.

What Happens Now for NIO Stock?

While NIO stock is down 54% over the last year it’s still worth $17 billion. At the end of September it had $2.5 billion of cash in the bank, enough financial strength to make an effort at scaled expansion.

This could make Nio investors a lot of money, but it also changes Nio’s risk profile.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.