Electric carmaker Tesla, Inc.'s (TSLA) stock price went into a funk after it reported earnings last week. At the start of this week, however, it is accelerating. Toward the close of trading, the Palo Alto, California-based company's stock was changing hands at $714, an increase of nearly 4% since the start of trading. Many reasons are being put forward to explain the jump in Tesla's shares.

Key Takeaways

  • Electric car maker Tesla's stock rose by nearly 4% in trading today after positive news about sales in China's electrical vehicle (EV) market, which is the world's biggest EV market.
  • Sales for all three U.S.-listed Chinese electric vehicle companies rose from a year ago.
  • China comprised 98% of Tesla's deliveries in its latest quarter, and the company is taking major steps to ensure that it is successful there.

The Rising Tide of China's Electric Vehicle Market  

China figures prominently in the most important reason behind the gains for Tesla stock. A CNBC report today is testimony to the country's growing EV market. For example, NIO Inc. (NIO) reported a jump of almost 125% in sales from the same time period a year ago. Its stock is up by nearly 3% from the day's start and by almost 19% on a weekly basis. NIO was the leader in China's EV market but dropped to third place. According to Citi analyst Jeff Chung, Tesla's price cut for its Model Y was responsible for NIO's fall.

Other Chinese car makers are also on a roll. XPeng Inc. (XPEV) had sales that skyrocketed by 228%, while Li Auto Inc. (LI) reported a monthly record of 8,589 deliveries for Li One, its electric car. Shares for XPeng and Li Auto were up by 6% and 2%, respectively.

The red-hot Chinese market for electric vehicles already accounts for slightly more than 50% of all EVs in the world. The country is expected to maintain its position as a world leader in the electric vehicle category for years to come, according to research firm McKinsey.

Tesla is already taking steps to become a major player in the market. While its brand is already a strong presence, the company has also reduced prices for its best-selling models to compete with cheaper alternatives. Of the overall deliveries Tesla reported this past quarter, 98% were made in China. Tesla has also set up a Gigafactory there and is actively taking steps to appease the Chinese government, which seems to have rolled out the red carpet for Elon Musk—Tesla's high profile and irascible CEO.

A Self-Driving Demo and Analyst Ratings Price Bump  

Other factors that could possibly be enthusing Tesla investors include a vote of confidence from KGI Securities, which initiated coverage of the car maker with an Outperform rating and an $855 price target. "Tesla will continue to stay ahead of the pack in the midterm; opportunities thrive for those with unique business models and strong competitiveness. We expect Tesla to maintain its leading position in the global EV space for at least the next 3-5 years," wrote analyst Jennifer Liang. The analyst also commended Tesla's "continued dedication to enhancing its EV offerings" and its "technological superiority" over competitors.

There was evidence of the latter on Twitter today, when videos of the company's self-driving software made the rounds. The demo showed a Tesla being driven through Seattle's Capitol Hill neighborhood. Full Self-Driving (FSD) software to comply with safety standards is still under development at Tesla, and it requires all drivers to be fully engaged with the steering wheel at all times, even when they are in FSD mode.

Meanwhile, Tesla is selling FSD subscriptions to shore up its revenue. During its latest earnings call, CEO Musk said that the company was making "great progress" on its self-driving software to comply with existing safety standards. "Some of the progress is not easy to see because it's actually at the foundational software level, and so it ends up being sort of two steps forward, one step back situation," he said.