This Is Why Tesla Needs to Double Production Over the Next Two Years

Unprofitable electric carmaker Tesla Motors (TSLA) - Get Report on Wednesday bumped up its production forecast, saying strong demand for its lower price Model 3 will allow it to produce 500,000 cars per year starting in 2018, two years ahead of schedule.

Just two years later, in 2020, CEO Elon Musk says his Palo Alto, Calif.-based company will likely be pumping out 1 million electric cars annually after producing between 80,000 and 90,000 this year.

Investors bought the optimistic forecast, pushing the stock up 3% to $229.16 in extended trading.

But the production increase will also require the company to dole out $2.25 billion this year to expand capacity, $750 million more than previously thought.

"It's going to make sense for us to raise some amount of money -- some combination of equity and debt -- and make sure the company has some good buffer of cash on hand," Musk said during the company's earnings call.

The company had previously said it wouldn't need to hit up investors as it remains on-target to begin delivering its $35,000 Model 3 late next year. A first complete development version of the car is just weeks away, Musk said.

Analysts cautioned that increasing production presents a risk and highlighted Tesla's habits of aiming high but then falling at least partly short. Its Model X was introduced late and then experienced hiccups in early deliveries. The company also once promised to build 55,000 cars last year -- it made a little over 50,000.

In a lengthy Q&A, Tesla executives said supply problems with their Model X, which led to a disappointing fourth quarter earnings announcement, had mostly been ironed out and promised that the company's Giga Factory battery plant would begin delivering batteries by the end of the year.

Tesla earlier Wednesday beat consensus on earnings with an adjusted first-quarter loss of 57 cents per share, compared to analysts' expectations for a loss of 58 cents per share. Revenue rose by 45% year-over-year to $1.6 billion in the most recent period, in line with analysts' estimates.

The executives also allayed fears that the lower priced Model 3 would cannibalize sales of its other cars but said the opposite is true -- sales of its other models have increased because of the strong publicity tracking the car's launch. About 93% of customers who have placed Model 3 orders have no previous relationship with Tesla, Musk said.

Tesla received deposits for 400,000 reservations in the weeks after the prototype was unveiled on March 31.

The company deflected comments about personnel troubles following the surprise resignations of Greg Reichow, Tesla's vice president of production, and Josh Ensign, its vice president of manufacturing.

"There will be an announcement in the very near future of some great executives joining Tesla," Musk said.

The executive said he had moved his desk to near the company's production line and often slept in a nearby sleeping bag to ensure any quality troubles have been removed.