(Updates stock price, adds background on car production)
SAN FRANCISCO, Oct 10 (Reuters) - Tesla shareholder T. Rowe Price Group Inc raised its stake in the electric car maker by nearly half in the July-September quarter, according to a regulatory filing on Wednesday, an apparent vote of confidence for embattled CEO Elon Musk.
A subsidiary of T. Rowe that manages the company's mutual funds increased its investment in Tesla to 10.2 percent during a tumultuous quarter for the Palo Alto, California-based car maker, highlighted by controversial tweets by Musk about taking the company private.
The U.S. Securities and Exchange Commission sued Musk for fraud over his tweets, and the incident clouded the company's better-than-expected quarterly results in early August, which lifted shares 16 percent in a single session.
T. Rowe Price Associates held 17.4 million shares of Tesla at the end of September, according to a filing with the SEC. It had reported it owned 11.93 million shares, equivalent to 6.99 percent, at the end of the April-June quarter, according to data from Refinitiv.
Wall Street concerns that Musk's statements on Twitter were distracting him from Tesla's main business also rose during the quarter as the Tesla chief repeatedly tweeted abuse at a British cave diver involved in the rescue of 12 Thai children.
T. Rowe Price is among Tesla's largest institutional shareholders, along with Edinburgh-based Baillie Gifford & Co and U.S. fund manager Fidelity.
A T. Rowe Price spokesman declined to comment about the company's investment in Tesla.
Tesla and Musk have agreed to pay $20 million each to financial regulators to settle charges by the SEC that Musk misled investors. As part of the agreement, Musk will step down as the company's chairman but remain as chief executive officer.
After Musk took to Twitter last Thursday to mock the SEC, Tesla's stock fell 7 percent. It has lost a quarter of its value since the end of June and is at a six-month low.
Tesla shares were down 1.79 percent at $258.10 on Wednesday.
Tesla has been struggling to ramp up production of its Model 3 sedan as older automakers including General Motors and BMW prepare their own offerings of electric vehicles.
Musk has promised that Tesla would be profitable and cash flow positive in its third and fourth quarters, while short sellers believe ongoing losses will force Tesla to raise more capital. (Reporting by Noel Randewich Editing by Paul Simao and Susan Thomas)