JPMorgan analyst Nick Lai upgraded NIO Inc. (NIO) to Overweight from Neutral with a price target of $40, up from $14.

The stock closed Tuesday down 23c to $21.62.

China's new energy vehicle penetration is set to accelerate from here and quadruple by 2025, Lai tells investors in a research note. In China's smart electric vehicle market, the analyst expects NIO to be a long term winner in the premium space among Chinese brands versus Xpeng leading the mass market. Tesla (TSLA) is driving "a rising tide lifts all boats" phenomenon, says Lai, who believes the China market is not "winner takes all."

Despite NIO's year-to-date rally, its valuation suggests "meaningful upside in the long term," contends the analyst.