China’s hot electric vehicle market has been gaining investor interest, and one analyst sees potential for the sector to grow further. “China’s EV market is the largest in the world and also delivers fast growth,” Vincent Sun, senior equity analyst at Morningstar said. Sun — who spoke to CNBC Pro on Nov. 1 — remains positive on the sector’s growth following a 31% year-to-date jump in EV sales to around 8 million units at the end of the third quarter. This translates to a penetration rate of 49% of China’s auto market in September. Looking ahead, he expects EV sales to grow further by 20 to 25% on the back of government subsidies, improving vehicle technology and new model launches providing more options to consumers. Sun also foresees that battery-powered EVs and plug-in hybrid EVs will “continue to outperform the overall auto sector,” and take share from internal combustion engines ‘Camry of China’ BYD has been the dominant EV automaker in China, but smaller players like XPeng and Nio are gaining prominence. Sun believes competition and price pressures in the domestic market may compromise BYD’s margins in the near-term. However, he said “strong sales volume should drive top-line growth.” Morningstar gives stocks a rating of between one and five stars, with a top rating indicating that the shares are undervalued. It has a 4-star rating on BYD and Nio and a 3-star rating on Xpeng. “We think Nio remains attractive for long-term investors who are patient for ramp-up of Nio’s new brand Onvo . For Xpeng, we believe the upside from new model Mona M03 has largely been priced in,” he explained. Rayliant Global Advisors’ Jason Hsu, however, believes the smaller automakers will have difficulty nipping away at BYD’s share. “I think of [BYD as] the Camry of China. There’s not a lot maneuver room for anyone else. So, I think it’s almost game over for other local brands,” the founder and chief investment officer at the asset management house told CNBC’s Pro Talks last month. “BYD just has a lower cost structure, such a superiority in terms of scale of manufacturing, given how long it’s been in the space and given its manufacturing capability — I think now everyone has sort of been pushed into the fringes as a niche player,” he added. BYD made headlines last week after it reported a 24% year-on-year increase in its revenue to 201.12 billion Chinese yuan ($28.24 billion), which surpassed the $25.18 billion reported by its U.S. rival Tesla for the same period. Third-quarter net income grew nearly 12% to 11.6 billion Chinese yuan. Tesla also has a presence in China and makes its Model 3 and Model Y vehicles there. Sales of these vehicles in China’s domestic market were up 66% year-on-year to 72,000 in September . Hsu said BYD and Tesla have a “good separation” because they are not seen as competitors in the Chinese market. “I wouldn’t worry about Tesla’s … market positioning in China as a result of the rise of BYD,” he explained. Instead, Hsu’s take is that Tesla would have to “reimagine itself in China” given that it is seen as a premium brand there instead of a low cost option as it is positioned in the U.S.