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This Once-Fallen Industry Led the Stock Market Today

By Dan Caplinger - Updated May 24, 2021 at 5:51PM

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Find out which stocks bounced back sharply on Monday.

Stock market volatility has been rampant lately, and investors needed a good break from some of the negativity surrounding Wall Street. That's exactly what they got on Monday, as major market benchmarks managed to post solid gains to start the week. The Nasdaq Composite (^IXIC 0.00%) did the best of the three top markets, but the Dow Jones Industrial Average (^DJI 0.00%) and the S&P 500 (^GSPC -0.07%) also fared well.

Index

Percentage Change

Point Change

Dow

+0.54%

+186

S&P 500

+0.99%

+41

Nasdaq Composite

+1.41%

+190

Data source: Yahoo! Finance.

The difficult thing that many investors have had to face recently is that areas of the market that had been among the best performers of the past year had given up considerable amounts of ground. That was especially the case for electric vehicle (EV) stocks, with nearly the entire industry seeing substantial drops from all-time highs. But on Monday, major EV makers rebounded, and that could point to a longer-term recovery for the once-hot industry.

NIO vehicle in a charging box garage.

Image source: NIO.

NIO leads the way

Among the best performers in the sector was NIO (NIO 3.84%), whose shares jumped more than 5%. The Chinese EV maker has commanded respect from U.S. investors for quite a while, and it made a strategic move to bolster its business prospects that could dramatically improve its fundamentals over the long haul.

NIO's big news Monday was that state-owned automotive manufacturing specialist Jianghuai Automobile Group agreed to increase the number of vehicles it produces on NIO's behalf. Capacity has risen steadily to around 10,000 vehicles per month recently, but NIO says that it now expects that to rise to 20,000.

The strategic move highlights one weakness that NIO has, compared to some of its biggest rivals in the industry. Rather than having its own factory, NIO relies entirely on third-party manufacturers for its vehicle throughput. That gives NIO a much more capital-light business model than its peers, but it also exposes it to potential supply chain vulnerabilities that could come back to haunt the automaker if it ever runs into trouble with its manufacturing relationships.

Tesla sees the light

Elsewhere, shares of Tesla (TSLA -2.62%) were up more than 4% on the day. The pioneering EV manufacturer has been the focal point for investors in the space, and after a considerable pullback, long-term bulls on the stock appear to have regained some confidence.

For Tesla, an attractive EV is only half the battle. The company is working hard as well on perfecting its autonomous-driving software platform. And along those lines, Tesla has reportedly decided to look at potentially integrating laser-sensor technology from an outside provider into its autonomous offerings.

Specifically, an agreement with Luminar Technologies (LAZR 2.03%) could open the door to testing the smaller company's capabilities. Interestingly, some will see the potential use of laser sensors as an about-face for Tesla, given CEO Elon Musk's past disdain for the technology. Nevertheless, some see the apparent reconciliation as a sign that Tesla is willing to do whatever it takes to get maximum functionality for its Autopilot as soon as possible.

Investors are excited about EVs and the prospects they have to drive the future of the automotive industry. Shareholders need to expect stock prices of Tesla, NIO, and other companies to be volatile, but there's a ton of growth potential in the industry as a whole, with plenty of room for long-term winners.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
NIO
$20.82 (3.84%) $0.77
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,309.51 (0.00%) $0.00
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,207.27 (-0.07%) $-2.97
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$12,854.80 (0.00%) $0.00
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$859.89 (-2.62%) $-23.18
Luminar Technologies, Inc. Stock Quote
Luminar Technologies, Inc.
LAZR
$10.07 (2.03%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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