U.S.-China Tariff Pause: Why Tesla's Stock Is Soaring Today

Shares of the electric car maker Tesla (NASDAQ: TSLA) traded nearly 6.5% higher, as of 10:14 a.m. ET today. Over the weekend, the U.S. and China announced an agreement to pause most reciprocal tariffs against one another, sending stocks surging. The Dow Jones Industrial Average rocketed over 1,000 points, while the tech-heavy Nasdaq Composite rose roughly 3.7%.

Tesla sources a lot of car parts from abroad

As one of the largest tech stocks, with a market cap close to $1 trillion, it's only natural to see Tesla's stock ripping on news that benefits the broader market.

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"This is very bullish news for the tech trade as the supply chain concerns will now be significantly reduced," Wedbush analyst Dan Ives wrote in a research note this morning.

Tesla was actually one of the stronger performers in the "Magnificent Seven" this morning. This is likely due to the fact that China plays a critical role in its business. Not only does Tesla sell a substantial amount of its vehicles in China, but one of the company's most critical factories is in Shanghai. According to Inside EVs, the Shanghai factory in recent years has built more than half of Tesla's vehicles.

Additionally, while Tesla is well known for making a lot of its vehicles in America, the company still sources many of its car parts from China. At a time when Tesla is looking to roll out cheaper electric vehicles, seeing tensions with China de-escalate is very good news for the business.

Image source: Getty Images.

Tesla still has a valuation issue

The U.S.-China news is great for the market including Tesla. But my core issue with Tesla, its extremely high 165 times forward earnings valuation, remains. Tesla must hit on future initiatives to hit these levels. All eyes will be on the company's upcoming robotaxi demonstration, which is set to take place sometime next month.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.