The idea sounds crazy, but there are already media outlets that are seriously discussing the likelihood of Tesla merging with Chinese EV startup Nio.

This begins after Tesla CEO Elon Musk said he would be open to discussing a merger with another automaker during an interview on Tuesday with Axel Springer, the parent company of Business Insider.

Musk said "If someone said, 'Hey, we think it would be a good idea to merge with Tesla,' we'd certainly have that conversation."

Business Insider went further to ask two experts who follow Tesla and the auto industry to name the most likely merger candidates for the US EV maker and they named four including Nio.

Teaming up with Nio would strengthen Tesla's position in China, the world's largest EV market, said Loup Ventures managing partner Gene Munster.

After finding itself in deep financial trouble earlier this year, Nio has staged a comeback, raising $1.4 billion in government funding and setting a series of monthly sales records, Business Insider noted.

However, Munster added, such a move would have political challenges, given the strained relationship between China and the US.

There other three most likely merger candidates are Ford, General Motors, and the Renault-Nissan-Mitsubishi alliance, which are among the world's largest traditional automakers.

Despite the idea, according to Munster, the odds Tesla that would merge with any automaker are "exceptionally low."

Despite they focus on different segments in the Chinese EV market for now, there have already been feud between Tesla and Nio.

At the launch of Nio's 100-degree battery pack on November 6, the company's founder, chairman, and CEO William Li Bin said said Nio's average unit sales price is about RMB 150,000 higher than Tesla's in China, the two companies' customers are not quite the same class of users.

He said that Nio's average selling price is already above RMB 400,000, indicating that he believes Nio's customer base is richer than Tesla's.

Li probably didn't expect to get a quick response from his rivals to his remarks.

A dozen hours later, Tesla CEO Elon Musk tweeted, "420 is ten times better than 42."

Musk's tweets were seen as targeting Nio, as Tesla's share price fell to $420 per share that day, while Nio's rose to $42 per share against the trend.

Li probably didn't expect to get a quick response from his rivals to his remarks.

A dozen hours later, Tesla CEO Elon Musk tweeted, "420 is ten times better than 42."

Musk's tweets were seen as targeting Nio, as Tesla's share price fell to $420 per share that day, while Nio's rose to $42 per share against the trend.

For Nio, the imminent threat from Tesla is the China-made Model Y.

Last week, the China-made Tesla Model Y (TSL6480BEVBA0) was included in China's new energy vehicle model catalog, which means that the model has been approved for sale in China.

The Ministry of Industry and Information Technology (MIIT) announced four documents including the Catalogue of New Energy Vehicle Models Exempted from Vehicle Purchase Tax (the 37th batch), and the China-made Tesla Model Y is exempted from vehicle purchase tax.

The Model Y, a compact SUV developed by Tesla, is the fifth car to be introduced since the company's founding in 2003, and was unveiled in Los Angeles on March 15.

In a report to investors on Thursday, UBS raised the price target of Nio from $16.3 to $55.00 to reflect brand premium and maintained its Neutral rating.

UBS said it sees Nio valuation as stretched against the bank's updated intrinsic (DCF) value but fair on a relative basis

The bank said all key performance indicators of Nio are increasing except potential competition from Tesla's upcoming China-made Model Y.

The positive momentum does not mean the road is no longer bumpy ahead. Currently, Tesla's Model 3 posts limited direct competition to Nio's ES8/ES6/EC6, but its upcoming Model Y localization from early 2021 could reduce its price from Rmb 488,000 to low Rmb 300,000, impacting Nio's SUVs, UBS said.

Tesla still has scale economy, cost advantage, and brand premium, and production capacity for its Model Y should start at 12k/month at least, the bank said.