What happened

Shares of electric-car company Tesla (TSLA -1.06%) jumped on Tuesday, rising as much as 9.9%. As of 2:50 p.m. EDT, the stock had settled to a 4.9% gain.

The move was likely fueled by combination of a gain in the overall market following a huge sell-off on Monday and a report from Reuters, noting that the automaker has submitted a document to the Shanghai government detailing plans to increase production capacity on some parts for its vehicles made at its China-based factory.

The inside of a Tesla Model 3

The interior of a Tesla Model 3. Image source: Tesla.

So what

As of 2:50 p.m. EDT, the S&P 500 was up about 2.8%. This followed the index's nearly 8% decline on Monday. Shares of Tesla also fell sharply yesterday, declining about 14%. The stock's rise on Tuesday, therefore, may primarily reflect a rebound in the electric-car maker's share price.

But a report that Tesla is aiming to increase production capacity of some parts at its factory in Shanghai, including nearly doubling the annual capacity of cooling parts for hits Model 3 in the market to 260,000 units per year, may be fueling optimism for the automaker as well. This news suggests that demand may be strong for its China-made vehicles.

Now what

Tesla had said in its fourth-quarter update that it had installed capacity at its factory in Shanghai for a production rate of 150,000 Model 3 units per year. With Tesla reportedly planning to increase production of some parts, could demand for the vehicle in the important market be greater than expected?