Nio (NIO), like other Chinese EV manufacturers, is struggling with battery-material sourcing and supply-chain woes in general.

However, a deal with a lithium producer may help to alleviate these issues.

Nevertheless, investors should tread carefully with NIO stock.

Nio (NYSE:NIO) has to deal with many of the same issues that other Chinese electric vehicle (EV) manufacturers do. For example, the company has to contend with supply-chain constraints and the challenge of sourcing lithium for EV batteries. On the other hand, an arrangement with a lithium producer may provide an advantage for Nio. That said, it’s too early to declare victory and load up on NIO stock.

Overeager EV-market investors have to face the facts. The industry has its growing pains, and it’s not always going to be a smooth ride. For instance, Britain-based research indicates that EV charge points are actually almost as expensive as gasoline.

Meanwhile, EV makers in China have their own problems to deal with. Covid-19 lockdowns made already acute supply-chain issues even worse. Don’t misunderstand — Nio is a promising company in the global EV space. It’s just that the situation is too problematic to recommend making an investment now.

What’s Happening With NIO Stock?

2022 hasn’t been a great year for EV stocks generally. However, NIO stock has been particularly brutal, sliding from $33 in January to $15 and change by the end of September.

The primary culprits, along with Covid-19 lockdowns, are supply-chain delays and the rising prices of EV batteries. These factors have increased costs for China-based EV manufacturers like Nio.

A Wall Street Journal article described the Chinese EV market as “cutthroat” but also as “lucrative.” Industry-favorable policies in China include tax breaks and cash subsidies.

These policies have boosted the nation’s EV use, to the point where in August, “nearly 30% of all passenger cars sold used new energy” in China. This bodes well for Nio, but sourcing lithium remains a challenge for all of China’s EV makers.

A Deal With a Lithium Producer Might Help Nio

This isn’t to suggest that the situation is hopeless. Indeed, Nio is being proactive by purchasing a stake in an Australian lithium producer, Greenwing Resources (OTCMKTS:BSSMF), to secure lithium for EV batteries.

Granted, it will cost Nio a pretty penny as the automaker has agreed to pay $12 million for what will amount to a 12.16% stake in Greenwing. However, this deal should help to get battery-essential lithium out of the ground. Reportedly, “At