Electric Vehicle Stocks Surge Following Inflation Data

Shares of electric vehicle makers Tesla (NASDAQ: TSLA), Rivian (NASDAQ: RIVN), and Aehr Test Systems (NASDAQ: AEHR) saw significant increases on Wednesday, rising 5.2%, 4.7%, and 15.8%, respectively, by 11:30 a.m. ET. The rally came despite a lack of company-specific news, likely driven by the release of crucial inflation data.

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Key Inflation Report Influences Market

Inflation affects vehicle demand significantly. Cars are major purchases often financed by buyers. Electric vehicles (EVs) have been particularly sensitive to interest rates since their upfront costs tend to be higher compared to traditional cars. High interest rates can deter buyers from purchasing EVs due to increased financing costs.

Many EV stocks, including Tesla, Rivian, and Aehr Test Systems, are either currently unprofitable or trade at high price-to-earnings multiples. As interest rates rise, the value placed on future cash flows decreases, which can adversely affect these companies.

The positive inflation report uplifted investor sentiment, leading to a broader “risk-on” rally. The Consumer Price Index (CPI) for December was made public today. While overall CPI figures came in slightly above expectations at 2.9% year over year and 0.4% month over month, the “core” CPI—excluding food and energy—cooled unexpectedly, showing 3.2% year over year and 0.2% month over month, compared to forecasts of 3.3% and 0.3%.

Cooler inflation is essential as apprehensions about inflation rising again emerged following the Federal Reserve’s December meeting. Many officials, including Chairman Jay Powell, noted that strong economic indicators and interest rate cuts could hinder inflation reduction efforts. This concern led to increased long-term Treasury rates and heightened expectations for higher auto borrowing costs.

Image source: Getty Images.

Each company’s stock performed particularly well today due to recent declines. Tesla’s shares surged after Elon Musk’s support for President-elect Trump, but the stock fell back when the company missed fourth-quarter delivery targets in January, loomed by the potential for its first annual sales decline in 2024.

Rivian had previously announced better-than-expected delivery numbers but faced market pullbacks influenced by interest rate concerns. Rivian suffered a significant loss of $1.44 billion in just the third quarter of 2024 while struggling to achieve profitability.

Notably, Aehr Test Systems, while not a vehicle manufacturer, produces crucial chip testing equipment reliant on silicon carbide chips for EVs. After disappointing earnings earlier this week, which fell short of revenue and profit expectations, Aehr’s stock plummeted over 25%. Despite attempts to diversify, the downturn in EV production is impacting Aehr’s core business, especially as challenges around silicon carbide investment loom.

Are Electric Vehicle Stocks Rebounding?

Determining if today’s CPI report signals the end of the downturn for EV stocks remains uncertain, but it presents a favorable data point. Consumer interest in EVs appears tied to interest rates, yet adoption seems to be faltering due to concerns such as range anxiety. Potential changes in government policy regarding EV tax credits may also hinder recovery efforts.

Investors should approach EV stocks with caution, particularly those trading at high multiples or operating at a loss. Focusing on established players within the EV supply chain could be a safer strategy, encompassing companies from parts manufacturers to OEMs like Tesla and Rivian, as well as chip testing firms like Aehr.

It’s essential for investors to monitor interest rates alongside technological advancements and legislative shifts. Although this sector can be volatile, opportunities for substantial returns exist if adoption rates for EVs surge.

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Billy Duberstein and/or his clients have positions in Aehr Test Systems. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are solely those of the author and may not reflect those of Nasdaq, Inc.