Why Tesla Stock Motored Nearly 4% Higher Today

Why Tesla Stock Motored Nearly 4% Higher Today

The beaten-down electric vehicle (EV) sector needed a win on the stock market, and on Monday it got one. Thanks to some good news from one of their own, numerous EV companies saw their stock prices rise on the day. Among these was the sector’s poster boy, Tesla (NASDAQ: TSLA), which increased by almost 4% against the S&P 500 index’s 0.4% decline.

Li Auto trounces estimates in its fourth quarter

The company delivering the goods as the trading week kicked off was big Chinese EV maker Li Auto, which reported its fourth-quarter results that morning. Happily for everyone invested in — or otherwise involved with — the EV sector, Li Auto delivered a crushing beat on earnings and managed to top analyst revenue estimates on a surge in auto shipments.

This helped soothe the lingering ache that was Tesla’s own fourth-quarter performance. The American company’s investors won’t be happy to be reminded that the EV king missed on both the top and bottom lines, with the former only inching up by 3% year over year and the latter falling by a queasy 40%.

This, combined with slowing growth in EV sales generally, made investors bearish on the industry as a whole.

Buyer, beware

That sentiment was thrown into reverse with the Li Auto numbers. Perhaps the soaring optimism that previously sustained EV stocks is coming back.

I don’t, however, think this will result in a long rally. Even after the recent slump, Tesla and the more popular EV stocks still have high valuations, which in my view aren’t justified by their diminishing growth prospects. One company’s performance, impressive though it may be, isn’t sufficient to make this pricey sector attractive again in the long term. However, that may change if other EV makers deliver significant earnings upside surprises.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.