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UPDATE 1-Investors raise bets against Tesla shares -S3 Partners

(Adds background on Tesla, current share price, effort to reach company for comment)

NEW YORK, April 3 (Reuters) - Investors raised their bets against Tesla Inc shares by 10 percent since mid-March, according to data provided by S3 Partners LLC on Tuesday, betting the market has misjudged the electric car maker's prospects.

Tesla shares sold short now stand at 31.5 million, or 25 percent of freely available shares, according to the financial data company. Short-sellers aim to make a profit by selling borrowed shares in the hope of buying them back later at a lower price.

The milestone comes as pressure builds on the company to show it can churn out its less expensive Model 3 sedans without raising more cash from investors. A fatal Tesla Model X car crash in California on March 23 also pressured share prices as well as the company's options and debt-market rating.

Tesla on Tuesday sought to quash any speculation it might need to raise more capital this year, driving the company's battered shares higher as it also announced it built 2,020 of its Model 3 sedans in the last seven days.

Tesla shares were up 5.3 percent at $265.89 on Tuesday afternoon, compared with a 12-month peak of $389 last September. The company did not respond to a request for comment.

The options market is underpricing Tesla risks, JPMorgan Chase & Co strategists said in a note on Tuesday, saying the shares "may be unable to escape a continued sell-off as a confluence of unfortunate events may seal its fate" regardless of the production results.

Short-seller Jim Chanos of Kynikos Associates LP told Reuters in November he continued to add to his short position in Tesla throughout 2017.

(Reporting by Jennifer Ablan and Trevor Hunnicutt in New York Editing by Chizu Nomiyama and Matthew Lewis)