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 least 80% of the proceeds from the placement will fund Greenwing’s exploration efforts in the San Jorge lithium project.”

Of course, this deal won’t solve all of Nio’s supply-chain problems. Still, it’s a step in the right direction as the Greenwing Resources deal could make Nio more self-sufficient.

What You Can Do Now

Nio’s arrangement with Greenwing Resources is certainly encouraging. That said, it’s probably not enough to inspire confidence in Nio’s investors right now.

As long as investors are jittery about China’s EV industry, NIO stock is susceptible to further downside. Therefore, cautious traders ought to consider holding off and waiting on the sidelines until conditions improve.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.