Why Tesla Stock Rose Monday

What happened

Shares of electric-car company Tesla (NASDAQ: TSLA) moved higher on Monday, following the automaker's quarterly update on its vehicle deliveries and production. The stock jumped as much as 6.4%, but gains have been erased at the time of this writing. Shares are down about 2%.

The stock's gain was likely fueled primarily by Tesla's achievement of its important Model 3 production target of 5,000 units per week, as well as management's decision to reconfirm its outlook for GAAP profitability in both Q3 and Q4.

With shares up about 25% in the past three months, Tesla is up against high expectations. This could explain the stock's inability to maintain its sharp rise on Monday.

So what

A record loss of $710 million in the company's first quarter of 2018 showed that Tesla's lagging Model 3 production has been weighing on the company's finances. Without increasing its Model 3 production, Tesla would have needed to raise capital through debt or equity. This has put intense scrutiny on Tesla's Model 3 production.

To curb these losses and become profitable, Tesla has said it will need to produce more than 5,000 Model 3 vehicles per week.

Having turned out 5,031 Model 3 units in the last seven days of Q2, Tesla importantly said it still expects to be profitable on a GAAP basis and cash flow positive in both Q3 and Q4.

For the whole quarter, Tesla said it produced 53,339 vehicles -- up 55% sequentially.

Now what

Looking ahead, Tesla plans to continue increasing Model 3 production, aiming for a production rate of 6,000 units per week by the end of next month.

Tesla had to tap into its new, makeshift Model 3 general assembly line in order to hit its production target. Housed in a rapidly built Sprung fabric structure, this new assembly line produced 20% of the Model 3 units made last week, Tesla said. The main Model 3 production line should be able to achieve a production rate above 5,000 units per week soon, management noted. Tesla also reassured investors that the quality of vehicles produced on the new line was as good as that on its main Model 3 production line.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.