UPDATE 2-Tesla critic Citron makes U-turn ahead of results

(Adds details from Citron note, quotes)

Oct 23 (Reuters) - Tesla Inc shares rose 6 percent on Tuesday, after long-time critic and short-seller Citron Research had a change of heart on the company's outlook, praising the success of the electric carmaker's mass market Model 3 sedan.

The firm lauded Tesla's Model 3 in a research note, saying the sedan is a proven hit and many of the warning signs around the company have proven not to be significant.

"With a great deal of analysis and due diligence that we can say for the first time, Citron is long Tesla," the research firm said in a note.

The change of opinion comes a month after Andrew Left-led Citron sued Tesla and its Chief Executive Officer Elon Musk, saying Musk fraudulently engineered his since-abandoned plan to take the carmaker private to "burn" short-sellers.

Citron said that it was not withdrawing its lawsuit against Musk and Tesla.

The firm said Tesla is destroying the competition, snatching customers from BMW, Mercedes, Toyota and Honda.

"Like a magic trick, while everyone is focused on Elon smoking weed, he is quietly smoking the whole automotive industry," Citron wrote.

The Model 3 is seen by analysts as crucial to the carmakers long-term prospects and Musk has promised the ramp-up will help make the company profitable in the third quarter.

"Citron switching is a sign shorts are getting nervous," Elazar Advisors analyst Chaim Siegel said.

Musk announced on Twitter on Aug. 7 that he might take Tesla private for $420 per share, in a $72 billion transaction for which "funding" had been "secured."

The U.S. Securities and Exchange Commission called those tweets "false and misleading" and accused Musk of fraud last month, seeking to remove him from his role in charge of the company. Tesla and Musk later settled with the regulator by agreeing to pay $20 million each and to make changes to management.

"While the media has been focused on Elon Musk's eccentric, outlandish and at times offensive behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being dominated by Tesla," Citron said.

Shares of Tesla, which is set to report third-quarter earnings after the market close on Wednesday, were up about 6 percent at $276.51 in morning trading.

The company surprised the market by advancing its third-quarter results by a week.

"Pulling forward an EPS date, you would think, this means Tesla is excited to tell us something," Siegel said. (Reporting by Munsif Vengattil and Supantha Mukherjee in Bengaluru Editing by Saumyadeb Chakrabarty, Bernard Orr)