What happened 

Shares of electric vehicle manufacturers and suppliers surged higher on Thursday as traders rotated back into high-growth and high-risk stocks. Investors have had an evening to digest the Federal Reserve's announcement of a 25 basis point increase in the federal funds rate -- a smaller bump than its previous recent increases. 

The EV industry's big mover of the morning was QuantumScape (QS 3.71%), which popped by as much as 18%, but Rivian Automotive (RIVN 2.84%) also jumped 12.1%, Lucid (LCID 5.88%) rose 10%, and Canoo (GOEV -6.77%) rose 7.4% at its peak. Shares of the stocks were up 14.9%, 8.2%, 6.8%, and 7.4% respectively at 11:40 a.m. ET. 

So what 

Thursday's share price moves are clearly driven by falling interest rates in the markets and investors moving back into riskier assets. According to Bloomberg, the yield on the 10-year U.S. Treasury bond fell by 6 basis points Thursday to 3.36% -- and it's down by 52 basis points in the last month. Lower rates on that benchmark both help the economy grow and make it less expensive for borrowers to purchase vehicles. 

We are also starting to get some data that indicates the U.S. auto market is stronger than investors may have expected. U.S. auto sales were up 5.8% year over year in January to 1.07 million vehicles. This is strong data given that interest rates are significantly higher than they were a year ago and layoffs have mounted in the tech industry. But buyers continue to show up. 

The complicating factor for these companies is that there's a price war brewing in electric vehicles right now. Tesla lowered the prices of its EVs in January, and Ford followed suit by cutting the price of the Mustang Mach-E by $4,500. These price cuts will eventually put pressure on Rivian, Lucid, and Canoo, and don't think that suppliers like QuantumScape won't feel the pressure too. 

Now what 

Fundamentally, little about the EV market has changed in the last few weeks, much less the last 24 hours. Supply is increasing, brands are competing more on price, and margins will come under pressure this year. None of these companies are cash flow positive, so those trends aren't good for them at all. 

There have been some early moves to try and rein in costs -- for example, Rivian announced a 6% reduction in its headcount this week -- but these companies will need to prove they can make money before they'll be great investments. And it's on that front that I have questions. 

As these companies ramp up their production, they will now need to lower costs as well. That's going to be a challenge, and it's not likely that all of these EV manufacturers will succeed over the long term. There's just not enough demand for all the EVs being produced by the legacy auto manufacturers and the new supply hitting the market from start-ups. 

Thursday's bounce is nice for shareholders, but I doubt those gains will persist for long unless the companies' growth and earnings are better than expected. Eventually, revenue growth and earnings need to materialize. Until they do, it would be best to take a cautious approach to these stocks.