Nio (NYSE:NIO) has become a bet that China will ultimately take down Tesla (NASDAQ:TSLA), at least in its home market.

Before Monday’s Hertz-fueled electric vehicle rally, Nio stock was up 8.5% since I last wrote about it on Oct. 11. At the time I had to eat humble pie, admitting that China’s 2020 bailout of the firm worked.

After yesterday’s 6.15% gain on updraft from the rental car firm’s big Tesla order, NIO stock is sitting with a market capitalization of $67.6 billion on what should be $5.5 billion in sales for 2021. That’s even more dirt cheap next to Tesla, with its new $1 trillion valuation on 2021 sales of about $41 billion (excluding any Hertz impact).

But it’s still pricey, an indication that Nio has succeeded in scaling production through government-backed JAC Motors and in selling the cars.

Nio Stock Draws American Investors

Nio has gained a following among American investors, earning the nickname “Tesla of China.” Despite the Cold War suspicions around China’s government, they see Nio as a good way to make money.

Over the last two years Nio shares are up almost 2,500%, more than twice the rise of Tesla prior to this week’s activity. Over the last year the gains have slowed, to 46%, while Tesla has more than doubled. So far in 2021, Nio is down 20% while Tesla was up almost 27% prior to Monday’s 12.66% jump.

Nio, which once pushed itself as the car for young capitalists, is now more favored by party cadres. Think of it as the Chinese EV version of Russia’s Zil limousine. Nio offers everything Tesla offers, with a healthy dose of patriotism besides.

But Nio is a niche product, even within China. It is not one of the country’s 15 biggest selling electrics. Tesla holds second and third place in that list. BYD Company Limited (OTCMKTS:BYDDF), however, holds four of the 15 places with cars like the BYD Han, a mid-sized sedan.

What excites investors about Nio is its battery swap shops, of which there are more than 500. These can change batteries (and deliver a new charge) in just a few minutes..

What should excite investors more is the Hycan, a crossover produced by a another state-owned company, GAC. That’s because the new car costs just $20,000, compared with up to $86,000 for the Nio ES6.

The Battery Race

Another reason for bullishness on Nio is its work on new battery technology. This is where the money is with electrics. Finding new ways to store electricity, for less weight and less cost, is everything in this industry. Batteries are why Tesla is so valuable.

Nio’s latest battery uses two types of cells, supposedly to allow for longer range in cold weather. Nio has been teasing a solid state battery for next year with twice the storage, thus twice the range, of current models.

Stories like this are behind analysts’ faith in Nio stock. TipRanks counts eight following it, and all eight say buy. Yahoo Finance counts 20 Nio analysts, who think revenue could nearly double next year to $9.46 billion.

The Bottom Line

Believe it or now, Nio is a bigger name in America than in China.

In China, the “Chinese Tesla” remains a niche product. Government backing lets it keep growing. Its emphasis on the high-end, in both cars and batteries, is appealing to western investor tastes.

But if you want to get a full taste of China’s electric car market, I think BYD is the pick. Warren Buffett has been invested in BYD for over a decade. The company started as a battery maker and batteries are key to success.

Nio is flashy, I was wrong to dismiss it, but it’s not where the action is. The action is in China’s mass market. That’s where Tesla’s biggest future competitors will come from.

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

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.