Stocks for several companies associated with electric vehicles (EV) have risen tremendously in recent months. But Chinese EV maker Nio (NYSE:NIO) seems to have missed the rally. In one year, Tesla's (NASDAQ:TSLA) stock has nearly doubled. Similarly, Lucid Group's (NASDAQ:LCID) stock has roughly doubled since its listing in July. Shares of Chinese automaker BYD (OTC:BYDDY) rose 61% in a year.

By comparison, Nio's stock price has fallen roughly 25.5% in a year, although it has risen around 542% overall since its listing in September 2018.

Let's take a closer look at what is hurting Nio stock lately and how it may fare in the long run.

Young man charging an electric car at public charging station.

Image source: Getty Images.

Nio operates in a fast-growing Chinese EV market

In the first half of 2021, global EV sales grew roughly 160% over the comparable period in 2020. More importantly, China alone accounted for around 42% of the 2.6 million EVs sold globally in the first half of this year. The number of EVs sold in China in just the first half of 2021 is equal to that sold in the country in all of 2020. Clearly, China is a dominant market for EVs and one that is growing fast, too. No wonder that all of the leading global and local EV companies are targeting this market.

According to CleanTechnica, BYD controls the highest amount, 17%, of China's EV market, including plug-in hybrids. BYD is followed by a joint venture between SAIC Motor, General Motors, and Liuzhou Wuling Motors, which controls 16% of the market. By comparison, Tesla controls 11%.

In the first nine months of 2021, China's EV sales reached nearly 2 million units. During this period, Nio sold 66,395 vehicles, accounting for roughly 3.3% of the market share. So, it is surely making its mark in a market dominated by larger and more established players. Moreover, because of the growing EV market, the company has ample scope for growth even if it just maintains its market share.

Why Nio stock is underperforming

In the last two years, Nio grew its quarterly revenue at an average year-over-year rate of 150%. However, in October, the company reported a 27.5% year-over-year drop in vehicle deliveries. Nio's vehicle deliveries were impacted due to lower production volumes. For half of October, Nio was upgrading its manufacturing lines to prepare for new products introduction, which impacted production volumes. Moreover, the company attributed the fall in production to supply chain volatilities. A fall in deliveries concerned investors, contributing to the stock's recent underperformance. Notably, Nio's new orders continued to increase during the month. Another reason likely contributing to the restricted rise in Nio stock's price is the intense competition in the China market.

Notably, Nio's stock price rose around 1,112% in 2020. Investors might have been concerned by the stock's significant rise, considering the competitive EV market scenario. That also contributed to some correction in the stock's price this year. Despite the fall in 2021, Nio stock is still up roughly 950% since the start of 2020.

The EV stock makes an attractive buy

Nio stock seems to be trading at a better valuation compared to newer EV companies such as Lucid or Rivian, which have much lower sales than Nio.

NIO Market Cap Chart

NIO Market Cap data by YCharts

Its price-to-sales ratio of 12 looks better compared to Tesla's ratio of around 27. Nio's ratio is higher compared to that of traditional automaker BYD, but that has historically been the case. With no significant sales in the trailing 12 months, Lucid or Rivian stock's price-to-sales ratio is not meaningful.

NIO PS Ratio Chart

NIO PS Ratio data by YCharts

Nio is on track to start delivering its new luxury sedan, ET7, in the first quarter of 2022. In addition to the local market, Nio is eyeing the fast-growing European market. The company has started deliveries in Norway and plans to enter Germany by the end of 2022. In the future, the company plans to launch lower-priced models, which will further expand its addressable market.

Despite competition, Nio has been able to carve a place for itself in the Chinese market. It may very well keep or expand its share in the future, too. The market seems to be overestimating competition while undervaluing Nio's potential. I think Nio stock's fall this year presents an attractive buying opportunity for long-term investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.