Morgan Stanley analyst Tim Hsiao initiated coverage of Chinese electric car company Xpeng Motors (NYSE: XPEV) with an Overweight rating and $70 price target, implying a 40 percent upside potential from Thursday's close.

The analyst noted that he is bullish on Xpeng's long-term growth prospects in China's electric vehicle market, where it has taken first-mover action in developing the full range of in-vehicle and autonomous driving systems, a key factor in differentiation and continued revenue generation.

The analyst went on to say that he is positive about Xpeng's internal R&D and mass-market segments.

Hsiao sees Xpeng targeting its products at the mid-to-high end of the market, which may signal that the company still has growth potential going forward. But the analyst also warned that this could also increase competition in the market.

The analyst also raised his forecast for electric vehicle sales in China to 1.7 million units in 2021 from 1.5 million.

China's new energy vehicle sales are expected to reach 5.6 million units by 2025, which would mean an annual growth rate of more than 30 percent and a penetration rate of 25 percent, he said.

Notably, the analyst raised his price target on Nio to $80 from $33 and raised his price target on Li Auto to $49 from $26.

At press time, Nio was up about 1 percent premarket at $58.80. Li Auto was essentially flat at $32.20. Xpeng was down 1.9 percent at $49.20.

Earlier today, Xpeng announced a recall of some XpengG3 vehicles manufactured from March 29, 2019, to September 27, 2020, totaling 13,399 units.

The vehicles included in this recall are at risk of a short circuit between the positive and negative terminals of the high-voltage DC power, which could result in no high-voltage power supply to the inverter.

Xpeng said the recall decision was made on the company's own initiative.