Some analysts have also attributed the rally to investors betting Tesla would go down in price then having to buy more shares to cover those bets as the stock's value rose instead - so-called "short covering".

Shares of heavily shorted companies can at times get pushed higher as traders rush to buy stock to cover their short bets, triggering what is known as a "short squeeze".

Panasonic shares closed up 10 percent, with those of Tesla's Asian suppliers LG Chem Ltd, based in South Korea, and CATL, based in China, also closing higher.

"Investors are now starting to believe that Tesla can make mass-volume electric vehicles [EVs], and automakers, battery makers and suppliers can make money from EVs," said analyst Cho Hyun-ryul of Samsung Securities.

Tesla last week reported strong vehicle delivery numbers and a second consecutive quarterly profit. The company also said it would comfortably make more than half a million vehicles this year.

Billionaire investor Ron Baron, whose firm holds a nearly one percent stake in Tesla, says he will not be selling a single Tesla share, adding he believes the carmaker could hit $1 trillion in revenue in 10 years.

Tesla reported revenue of $24.6bn in 2019.

Panasonic also said it was expanding production to keep pace with demand from Tesla, indicating the company was finally getting ahead of battery production bottlenecks it flagged last April. The daily percentage gain was the stock's biggest in about four years.

Shares rose 10 percent in LG Chem and CATL, both of which signed battery-making deals with Tesla last week, ending the automaker's exclusive partnership with Panasonic.

Shares of fellow EV battery makers SK Innovation Co Ltd and Samsung SDI Co Ltd rose 4.5 percent and 9 percent, respectively.

POSCO Chemical Co Ltd, which recently signed a $1.6bn deal to supply battery-making materials to LG Chem, rose 4.6 percent.

EV hope

Panasonic said on Monday that it expects to stabilise profit at Tesla's Gigafactory by next year, and that there is a lot of room to improve production efficiency for what is an EV's most expensive component, accounting for about a third of total cost.

The firm is also gearing up to mitigate the loss of the exclusive Tesla partnership by setting up a joint venture with Toyota Motor Corp to develop a type of EV battery that the pair plan to sell to any automaker.

"When you look back, say two to three years ago, there were doubts about whether the EV era would arrive," said analyst Kang Dong-jin at Hyundai Motor Investment and Securities in Seoul.

"But now there is more viability about the sector thanks to Tesla's strong sales and Europe's tougher emissions regulations," he said.

The European Union introduced tighter emission rules after Volkswagen AG said it had cheated diesel pollution tests. The United Kingdom on Tuesday will announce a ban on the sale of new petrol and diesel cars from 2035 - five years earlier than previously planned.