(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)

Tesla Inc. (TSLA) shares have rallied sharply, up by nearly 12 percent, since the start of December. Positive developments regarding the production ramp of the Model 3 and build-up of companies reserving the company's new semi-truck have helped turn the negative sentiment in the stock around. This new attitude and the buildup to the release of the delivery numbers for the Model 3 in early January could continue to lift shares of Tesla through year-end. 

Tesla shares had risen by nearly 80 percent through September 2017, before concerns regarding the ramp-up of the Model 3 – Tesla's new mass-market four-door sedan – sent the stock sharply lower. Shares fell after the company announced a bottle-neck was delaying production and would cause the company to miss its year-end target of 5,000 Model 3's per week by December. This news caused the stock to fall by nearly 23 percent from September 18 through November 2.  

TSLA Chart

TSLA data by YCharts

Positive Developments

But reports have been circulating recently that Model 3 production is approaching the 5,000 cars per week Tesla had been targeting. According to Electrek, a Tesla supplier is reporting that Model 3 production has been increasing rapidly and that Tesla has increased its supply order back to a pace of 5,000 cars per week. 

The website is also reporting the rate at which Tesla is sending out invitations for configuring Model 3 to reservation holders is even picking up. Additionally, companies such as Pepsi, Sysco, and Anheuser-Busch have begun placing reservations on the new Tesla semi-truck. 

Issues Remain

None of the recent developments mean Tesla's production problems are solved, or that the semi-truck will be a success. But it does help change sentiment around Tesla, which has been reflected in the stock's recent rise. Additionally, Tesla should also provide delivery results in early January, which could give the company a chance to update the production rate for the Model 3. 

Shorts Pile In

TSLA Short Interest Chart

TSLA Short Interest data by YCharts

Short interest in Tesla has been rising since October, by roughly 4 million shares to about 31 million shares short, representing nearly 30 percent of the stock's float, which is a high level. The increase in short interest could lead some short-sellers to look to cover shares ahead of any delivery results going into the final weeks of the year, especially if sentiment continues its positive momentum. Likewise, should sentiment shift or negative news develops, it could cause short-sellers to pile into Tesla. 

Market sentiment and reports aren't enough to keep Tesla stock rising; it will need to deliver on the promise of the Model 3. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.