Electric vehicle stocks are collapsing, and Nio (NYSE:NIO) is not immune. Nio stock fell 19% just between Tuesday and Thursday, with the catalyst apparently the company’s fourth-quarter earnings report, released on Monday afternoon.

But from here — and I’m a long-time Nio skeptic — the news from earnings actually looks pretty good, and the weak trading in NIO stock didn’t start this week. From a record close of $62.70 on Jan. 11 to Monday’s close of $48.34, NIO had fallen 23% even before the release. The sell-off from those January highs now has reached about 37%.

Something else is at play here, with broader EV weakness a culprit. The question for NIO stock is why that weakness has arisen and what it means for the stock going forward.

This Was a Good Earnings Report

In regular trading the day after earnings, NIO stock fell more than 10%. I’ll admit: I have little idea why.

Again, this looks like a strong report. The deliveries figures for Q4 (and the full year) already were known. What new information we received, however, looks bullish, particularly on two fronts.

First, pricing was solid. In Q4, for instance, deliveries rose 111% year-over-year, but vehicle revenues increased 130%. Product mix certainly was a help, as the more expensive ES8 made up a greater share of total deliveries. Still, Nio clearly isn’t generating its unit growth via discounting.

That pricing strength also is reflected in perhaps the most important aspect of the report: Nio’s vehicle margin. Bear in mind that just a couple of quarters ago, Nio was losing money on every car even before it paid a dollar of operating expenses. In Q4 FY2019, for instance, vehicle margin was negative 6% of sales.

Nio set out in 2020 to improve that figure substantially, and it did. Q4 vehicle margin was a much-improved 17.2%. There’s still work to do, obviously, but a 2320 basis point expansion year-over-year is nothing to sneeze at.

Nio’s adjusted loss of 14 cents per share did miss Street expectations, which seems incongruous with pricing and margin strength. But as an analyst pointed out, foreign currency moves caused the miss. From an operating perspective, Q4 is fine at worst.

Guidance for Q1 deliveries over 20,000 units looks solid as well. It’s difficult to blame the earnings report for the three-session, 19% decline.

Where Nio Sits Now

It’s worth remembering that it was not that long ago that Nio seemed to be in significant trouble. Just 13 months ago, Nio had to delay payroll.

The novel coronavirus pandemic then raging in China obviously was a factor, but so was exceptional cash burn. Nio lost $1.6 billion in 2019 and in that year’s fourth-quarter report admitted it didn’t have enough cash to last the following 12 months.

Indeed, I wrote back in June 2019 that NIO stock had a chance of heading to zero. That legitimately was the case.

Obviously, the story is enormously different now. A transformative deal with a local government strengthened the balance sheet, and subsequent equity offerings added more breathing room. With deliveries rising steadily quarter after quarter, Nio is in excellent position.

In fact, broadly speaking, Q4 seems to cement Nio’s position as a force in Chinese EVs going forward. Profitability is on the horizon. Nio is taking market share.

A year ago, there were legitimate, well-founded fears that Nio could collapse in relatively short order. That’s no longer the case.

What Is Nio Stock Worth?

Of course, even with the decline of late, the NIO stock price reflects that fact. NIO has rallied 915% over the past 12 months.

Even that understates the case a bit. Again, Nio has issued quite a bit of stock over that stretch. And so while the share price has risen roughly tenfold, Nio’s market capitalization has increased 1,300% over the same period.

That fact can’t be ignored. Indeed, it may be part of the recent sell-off. We’re seeing valuation fears crop up across EV stocks. Nio’s Chinese rival Xpeng (NASDAQ:XPEV) has seen its stock fall by half since late January.

Tesla (NASDAQ:TSLA) has pulled back some 30%. The weakness has spread to charging station play ChargePoint (NYSE:CHPT) and battery developer QuantumScape (NYSE:QS).

For NIO and the sector, the sell-offs lead to one question: Is this a misguided panic, or a much-needed correction?

For NIO, I’m in the latter camp. Yes, the story has improved dramatically. Yes, the opportunity is huge. But even with this pullback, Nio has a market capitalization of some $64 billion.

That’s a simply massive figure. It prices-in not only Nio being a force in Chinese EVs, but a player worldwide. Bear in mind that for investors to earn even 7% annualized returns from here, Nio has to be worth in the range of $130 billion ten years from now. That’s greater than General Motors (NYSE:GM) and Ford Motor Company (NYSE:F) combined.

To be fair, reasonable investors can see it differently. And for most of the last 12 months, those investors have been right. Even this steep sell-off only leaves NIO stock at a three-month low.

Still, I wouldn’t believe that the stock is cheap just because of that sell-off. NIO isn’t cheap. Whether it’s too expensive is the debate — and after earnings, the most important debate.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.