Three of the biggest Chinese electric vehicle (EV) makers reported a decline in deliveries for January. Nio (NYSE:NIO) was no exception. It saw vehicle deliveries fall to 9,652, 8% lower than in December. But, surprisingly, NIO stock isn’t falling on the news.

As a glass-half-full kind of person, I look at the latest piece of news and think that Nio was bound to hit a bump in the road. After all, the buying sentiment for EVs remains rather tepid.

On Jan. 28, NIO stock fell below $20 for the first time in 16 months. Yet, compared to January 2021, deliveries grew by 34%. What’s not to like?

In January, I stated that “in 12-24 months, anyone who doesn’t buy NIO stock under $30 now will be kicking themselves.”

Well, despite the monthly decrease in January, I see its stock trading under $20 to be an even better risk-to-reward proposition than two weeks ago. Here’s why.

NIO Stock Under $20

Here’s what we knew about Nio’s valuation in January 2021.

First, it had cumulative deliveries of 82,866 vehicles through January 31, 2021. Secondly, it had a market capitalization of $81 billion (based on 1.42 billion American Depositary Shares (ADS) outstanding as of December 31, 2020, and a $57 share price). That works out to $977,667 per vehicle.

At the end of January in 2022, it had cumulative deliveries of 176,722. Based on 1.56 billion ADS outstanding as of September 30, 2021, an additional 53.29 million ADS issued in November, and a share price of $24.50, Nio has a $39.7 billion market cap. That works out to $224,573 per vehicle.

So, let’s get this straight. Nio has added 93,856 vehicles over the past year, and the value per vehicle delivered has fallen by 77%. I mean, the law of starting with a larger base amount means a declining average makes sense, but I find a 77% drop hard to comprehend.

This is especially true when you consider that in 2021, Ford’s (NYSE:F) sales fell by 6.8%. Further, the U.S. automotive industry sold 15.1 million vehicles last year, the lowest number since 2012.

Yet Ford’s share price rose 136% in 2021 from $8.79 at the end of 2020 to $20.77 at the end of 2021. Ironically, its market cap now sits at $82 billion, about the same as Nio’s on January 31, 2021.

Times have changed.

While there’s merit to the argument that Ford was undervalued a year ago — it had a price-to-sales ratio of 0.27x at the end of December 2020 — it trades at 0.6x sales today, the highest it has been over the past decade.

Now, I’ll admit, between the Mach-E SUV and the F-150 Lightning, it has some exciting vehicles in the pipeline, but Nio has built three vehicles from a standing start, where Ford has been around for more than a hundred years.

Like Tesla (NASDAQ:TSLA), it’s impressive that Nio has been able to hang around. Once it starts making money, Nio’s share price will rocket to $100 and beyond.

NIO Loses Money Right Now

In the trailing 12 months (TTM) ended September 30, 2021, Ford had $7.09 billion in operating income from $134.6 billion in sales. On the other hand, Nio had an operating loss of 2.98 billion Chinese Yuan ($470 million) from 32.9 billion Chinese Yuan ($5.2 billion).

Nio detractors will argue that there’s no comparison. Profits are all that matter. And they’d be right. But, like all businesses, profits eventually must come, or they’ll be out of business.

Look at Tesla. It just delivered record profits that were better than analyst expectations, and its shares got pummeled. There is a major bear market for EVs right now. Until that changes, Nio stock could be stuck between $20 and $30 for a while.

The Globe and Mail recently published a piece that suggested Canadian drivers won’t jump on the electric bandwagon until they get more range.

“Drivers in Canada say they won’t consider buying an electric vehicle unless it has a driving range of at least 599 kilometers, according to a new survey by consulting firm Deloitte. Today, 300 to 500 kilometers is the norm for most EVs,” The Globe and Mail’s Matt Bubbers reported on Jan. 25. “If you think 599 kilometres of range is overkill, wait til you hear how much it’s going to take to convince Americans to bite: They want EVs that can cover 834 kilometres before recharging.”

For U.S. readers, 834 kilometers is equivalent to a little more than 518 miles.

The article quotes Deloitte’s head of automotive research, Ryan Robinson, which suggests car and truck buyers will not compromise on what they want given the price of new vehicles in 2022. Surveys show that only 10% of Canadians would consider a fully electric vehicle for their next buy. Americans are even less enthusiastic at 5%.

So, the high price, low range combination keeps North American buyers away in droves. It doesn’t matter how many charging stations exist across America. Consumers won’t bite in a big way until they can go on a long drive without recharging.

It’s that simple.

The Bottom Line

If you feel my headline is a tad aggressive, I would agree. By no means are you assured of making money with Nio stock under $20? There are no guarantees in investing.

However, Nio commenced orders for its new ET7 on Jan. 20. Some project the company could reel in more than 100,000 orders on the luxury sedan. That’s something to put a slight jump in NIO stock.

Once the ET7 hits China’s roads — not to mention those in Europe — Nio will have four vehicles to offer interested EV buyers. That’s a significant step forward. However, the cynical would say a fourth vehicle will cause it to lose more money in the future, making its shares even less attractive.

The contrarian investor is probably best equipped to bet on Nio because no one else seems to be ready to step up to the plate at this point.

If you’re aggressive and willing to take on above-average risk, NIO stock offers intriguing upside possibilities. If you’re not, now is not the time to consider its stock.

— Will Ashworth

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Source: Investor Place