One of today’s big movers in an otherwise bearish market has been Nio (NYSE:NIO). This China-based electric vehicle (EV) maker initially soared 4.3% in earlier trading, before giving up much of these losses this afternoon. That said, NIO stock remains higher by around 1%, outperforming the market by a wide margin today.
This move comes as the company announced a 12% stake in an Australian lithium miner, Greenwing Resources, this morning. This investment is expected to cost around $7.7 million (12 million AUD). A big bet, this deal appears to be aimed at assuaging concerns around the company’s lithium supply, amid rising demand for lithium. A key component in battery production, Nio appears to be shoring up its supply chain, as demand for EVs in China continues to remain red-hot.
This strategic financing deal is one that includes the potential for Nio to be nominated to the board of directors, given the company’s newfound ownership of more than 10% of Greenwing. Whether this happens or not remains to be seen. However, this is a big investment outside of China that’s garnering attention right now.
Let’s dive into why investors are buying NIO stock heavily today on this announcement.
Why Is NIO Stock Surging Higher Today?
Nio’s growth has really been constrained by the company’s ability to produce vehicles. Sourcing materials and parts continues to be a priority for the company, as Nio prepares for greater demand long-term.
Accordingly, for Nio to be able to accomplish its lofty goals, lithium is one of the key minerals the company must focus on. This deal, which will allow Greenwing to accelerate its exploration program at a key Argentinian mine, could be a win-win for both companies. Nio retains the right to purchase between 20%-40% of the company that owns the rights to this project if more lithium is discovered. That could ensure that a lot of lithium flows directly to Nio, and not into the hands of its competition.
There are many who view the EV sector as one that’s in a race for global market share. Accordingly, this strategic move makes a lot of sense. While it’s somewhat risky, given the exploration-stage nature of Greenwing, it’s a move that provides solid risk-reward for investors. At least, that’s how the market appears to be interpreting this deal today.
On the date of publication, Chris MacDonald 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.