What happened

While early gains have been pared back, the stocks of several electric vehicle (EV) makers jumped today. Shares of Rivian Automotive (RIVN -1.92%), Lucid Group (LCID 0.55%), and Polestar (PSNY -5.52%) were higher by 4%, 5%, and 11.4%, respectively, at their highs earlier today. As overall markets turned lower, so did these stocks. But as of 2:56 p.m. ET, Rivian shares were still up 2%, Lucid was still higher by 2.3%, and Polestar remained up by 4.6%. 

So what

Markets jumped this morning when the latest inflation data showed wholesale prices rose less than expected. The Producer Price Index (PPI) climbed 8% in October year over year. That was less than the 8.4% annual rate in September and well below the peak rise of 11.7% in March compared to last year.

That data boosted investor optimism that inflation may have peaked. It comes on the heels of the better-than-expected Consumer Price Index (CPI) data the Labor Department released last week. 

That helped contribute to the gains seen in the electric vehicle sector, as investors believe cooling inflation could help spur the Federal Reserve to pause, or even reverse, interest rate hikes.

Each of these start-up companies will need to continue raising money to grow their businesses, so lower interest rates could help them borrow more cheaply. Additionally, lower inflation should mean a drop in raw material costs, helping to boost margins. But there were other reasons for the outperformance of these names today, too. 

Now what

In its third-quarter report released last week, Rivian said it ended the quarter with $13.8 billion in cash and equivalents, but it has delayed some capital spending to preserve more of its cash. That cash balance was down from $15.5 billion as recently as June 30. The company believes its cash on hand will carry it through 2025.

In its third-quarter report, Lucid said its cash balance would only bring it into the fourth quarter of 2023. Lucid followed that up with an announcement that it already had plans in place to raise another $1.5 billion. 

But Lucid also announced news today that likely helped investors boost the stock. The luxury EV maker has a limited market with its current lineup. While Rivian's average vehicle cost to customers was $81,000, Lucid vehicles delivered in the third quarter had an average cost of nearly $140,000. Today, it announced a rear-wheel drive version of its Air Pure sedan will be offered beginning next year, helping it reach a larger customer base. That lower-cost version will cost approximately $70,000, according to a Barron's report. 

While Polestar may have less name recognition than both Rivian and Lucid, the brand jointly owned by Volvo and that automaker's Chinese parent company, Geely, already has about 70,000 vehicles on the road. It expects to produce 50,000 in 2022, which would be double what Rivian plans to manufacture. Like Rivian and Lucid, Polestar is still working to raise capital needed to grow.

Today's inflation data may have been good news for the longer-term prospects of these early-stage EV makers, and investors are showing it by bidding up the stocks.