The Toffees have an advantage to protect going into the second leg at the Etihad Stadium tomorrow.
However, Nicholas feels that City’s attacking quality will see them edge past Roberto Martinez’s side to set up a final against Stoke City or Liverpool.
“Well an all-Merseyside final would obviously be great but, just like their neighbours, there's too many defensive problems with this Everton team,” Nicholas said.
“They are exciting to watch, but they're just so vulnerable at the back. Everyone is talking up John Stones and he is a great footballer, but he's also susceptible to mistakes.
“Those issues and Sergio Aguero being back in form leads me to believing City will be able to break them down enough times to overturn this deficit.”
Everton won the first leg of the tie 2-1, after putting one of their finest performances of the season.
The Toffees scored took the lead in the tie through Ramiro Funes Mori, and although Jesus Navas netted an equaliser for City - they were not on level terms for long.
Romelu Lukaku regained Everton’s lead, and they now have a precious one goal advantage to protect in the away leg.
Everton head into their match against City on the back of a disappointing 2-1 defeat to Swansea in the Premier League, but a win over Manuel Pellegrini’s side would go some way to making up for that result.