Over the last several months, I’ve been consistently bearish on electric vehicle maker Nio (NYSE:NIO). Commonly referred to as China’s Tesla (NASDAQ:TSLA), that comparison originally had a positive connotation. But with both companies’ equity shares – and especially the Nio stock price – underperforming this year, it’s now a regrettable assessment.
Primarily, that’s because warning signs against both automakers were flashing wildly. And I’m not just referring to their less-than-favorable financials. As I researched alternative energy sources, I discovered that the science of such innovations clashed with their economics. One of the biggest impediments is rolling out the EV charging infrastructure necessary for mainstream adoption. I wrote:
Simply put, the demand is there, but the platform isn’t. This is a repeated scenario throughout the world, negatively impacting the Nio stock price.
Admittedly, with more consumers driving EVs, this should incentivize the development of public charging stations and other infrastructural needs. However, another bottleneck is the charging station’s lack of monetization.
As Fast Company put it, no one has found a way to make EV infrastructures economically viable. Until this matter is resolved, it represents another critical delay for NIO.
However, I’ll admit this: because of the nominal deflation of the Nio stock price, it follows the law of small numbers. In other words, any news item could potentially skyrocket shares.
But as we discovered, this mathematical dynamic also works the other way. With NIO well under $2 a pop, the EV maker has proven that not all cheap stocks are discounts. And no, I still wouldn’t gamble on shares. Here are three psychological reasons why:
NIO Is Progression by Regression
Earlier this summer, I wrote a piece that stakeholders of Nio stock did not appreciate. Because of the unproven nature of EVs, I felt that shares could sink to zero someday.
Obviously, we’re not quite there yet. However, back when InvestorPlace published my story, the Nio stock price was just above $3. At time of writing, shares are trading hands at $1.64. Put differently, we’re making worrying progress.
At the time, I focused my attention on the science of EVs. For example, I discussed the fact that EV batteries operated best under relatively tight thermal conditions.
So far, I have yet to find a scientific source that contradicts the shortcomings of EVs. Interestingly, Gavin Harper, Faraday Institution Research Fellow at the University of Birmingham and author of “Fuel Cell Projects for the Evil Genius,” noted that EVs “take time to charge so you need an awful lot of infrastructure to service these vehicles.”
This is also a point that Voro growth strategist and alternative energy expert Nicholas DiPreta concedes. In an email regarding some of the limited advantages of hydrogen energy, DiPreta told me, “the recharge time is much faster than that of electric cars (5 minutes or so).”
Now let’s look at NIO psychologically. Do you think most drivers will want to sit in their car for 30 minutes at a charging station? Technology has always been about doing more stuff in less time. With EVs, you’re basically doing the same thing – driving – in more time.
That’s just a hard sell for the average consumer.
Too Many Compromises Threaten Nio Stock
If I may be blunt, here’s the reason why EVs have disappointed investors. As NIO and Tesla have amply demonstrated, their EVs are gorgeous. Moreover, the technologies that they embody are right out of science fiction.
But consumer psychology is a rarely discussed topic when it comes to EVs. That’s unfortunate because before EVs can take over the auto industry, they must overcome decades of established behaviors.
For instance, EV batteries must power not only the propulsion but all the accessories of the vehicle. Naturally, you don’t want to unnecessarily use your battery for heating or cooling the cabin if you don’t have to.
To get around this problem, Harper observed that many drivers “precondition” their EVs. Preconditioning involves using an EV’s temperature control system while plugged into a power source. As Harper further explains:
The EV will then get to comfort temperature before you leave. This conserves the energy from the battery as the car is heated or cooled to the right temperature and the car has ‘thermal mass.’ It takes less energy to maintain a temperature than using energy to get the vehicle up or down to temperature.
Like millions of American drivers, I just get in my car and go. I don’t give a second thought to preconditioning. But with EVs, this is a cumbersome reality. Maybe you don’t have an issue with it, but what about everybody else?
Again, it’s a tough sell to the average consumer, which invariably hurts the Nio stock price longer term.
EV Efficiency Has an Asterisk
I always obey all traffic laws and never exceed the speed limit. However, my friend has a tendency of blowing through speed limits as if they were merely recommendations.
As I told my friend, fast driving leads to increased inefficiency of an already inefficient internal combustion engine. However, my friend had a great counterargument: every time he punches the throttle, he can always refuel at any number of gas stations.
Put differently, fossil-fueled cars are an easy trade-off: more fun means more money, and more money means less fun.
However, it’s not so simple with EVs. In this case, more fun could leave you stranded.
Because EVs are holistically limited compared to traditional cars (in terms of range and refueling stations), drivers find creative ways to stretch their mileage. As Harper observed, “Savvy EV drivers have cottoned on to some of the finer points of aerodynamics. So called hypermilers may adopt techniques such as tailing trucks on freeways in order to travel in their slipstream.”
As I mentioned earlier, this is a hard sell to the consumer. While some drivers may gain intrinsic pleasure of reducing their environmental impact, I dare say that most people just want to get from point A to point B in the quickest time possible. Thus, this is just another challenge that seriously detracts from Nio stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.