What happened

Shares of electric vehicle makers Tesla (TSLA 2.92%), Rivian (RIVN -5.85%) and Lucid Motors (LCID -3.97%) were rocketing higher today, up 8.4%, 6.2%, and 6.2%, respectively, as of 11:27 a.m. ET.

Tesla received some welcome company-specific news today, while Lucid had a favorable funding round last week. But the likely cause of today's rise was a macroeconomic data point that lifted all high-growth stocks. That came in the form of today's employment report, in which "bad news is terrific news" for certain beaten-down high-growth names.

So what

This morning, Morgan Stanley analyst Adam Jonas wrote a bullish note on Tesla after the stock's amazing plunge over the past month. Although he lowered his price target from $330 to $250 due to the challenging macroeconomic and high-rate environment, Jonas said he believed Tesla could extend its lead over both electric vehicle start-ups and legacy players making the EV transition due to its first-mover status and ability to self-fund its operations:

Within this environment, we believe players that are self-funded (non-reliant on external capital funding) with demonstrated scale and cost leadership throughout the value chain (from manufacturing to up-stream material supply) can be relative winners.

Basically, Jonas' argument is that the strong players will get stronger in a difficult environment. Last week, Lucid itself had to raise more money, selling around $1.5 billion in stock, $915 million of which came from the Saudi Arabia Public Investment Fund, its largest existing shareholder. While that helps buffer Lucid's efforts to get to greater scale, these capital raises are diluting shareholders at much lower stock prices. Lucid's stock is down a whopping 83% on the year, even after today's rise.

Of course, all three stocks were rising today, Lucid included, so the main factor behind their ascent was likely something broader.

The catalyst for today's ascent not only for EV stocks but really across all growth tech stocks was today's employment report. Last week, unemployment claims rose to 225,000, up from the previous week's 216,000 print and in line with consensus estimates.

Why would rising unemployment claims be a good thing? Because the Federal Reserve is desperately trying to tame the past year's high inflation. Since one of the main culprits behind current inflation is a labor shortage in certain key industries, higher unemployment numbers off the historically low unemployment base are actually welcome. In response, long-term bond yields actually fell, with the 10-year Treasury bond falling a few basis points after several days of gains.

When the economy shows signs of softening and long-term yields go down, young, higher-growth companies that trade at high multiples but have great long-term growth prospects tend to do well. That seems to be the case today.

Lucid sedans in a fancy showroom.

Image source: Lucid Motors.

Now what

Despite today's rally, there are still a lot of concerns surrounding these three EV players. Unlike the high-growth software industry, for instance, car-making is capital-intensive, with significant outlays needed for manufacturing before revenues and profits come in. Meanwhile, the global economy is still highly uncertain at this point, so it's an open question how demand will hold up in 2023. That poses big risks for each of these three names.

In addition, while Tesla still has its fans, one has to wonder how Elon Musk's increasingly outspoken and political commentary on Twitter will affect Tesla's brand in the long term. Despite its 68% decline in 2022, Tesla still trades at 36 times earnings, so the company will have to grow profits a lot in order to justify even this beaten-down valuation.

So Tesla has the current scale and self-funding advantage, but the high-end Rivian and Lucid Motors could definitely take advantage if wealthy buyers eschew the Tesla brand for these newer alternatives. In 2023, it will definitely be interesting to see which challengers come to the fore against Tesla, if any, or if Tesla's established market position and scale give it an advantage in a difficult demand environment.

With Tesla down 68% and Rivan and Lucid each down about 83% on the year, significant upside remains as the EV revolution comes into view; however, risks are also quite high for each of these names. If you have a position in any of them, make sure your allocation is reasonable and within your risk tolerance.