Tesla's stock price has left Wall Street analysts scratching their heads. Here's what's fueling the searing rally.

• Tesla's stock has surged more than 20,000% since it went public in 2010.
• The searing rally has been driven by production growth, EV frenzy, and frontman Elon Musk.
• But many Wall Street analysts say Tesla's bloated stock price is a bubble that's bound to pop.

Love it or hate it, there's no denying that Tesla's stock is on a roll.

Since the company went public in 2010, its shares have ballooned more than 20,000%, comfortably outpacing the market as a whole, consistently obliterating Wall Street's expectations, and turning early investors into millionaires.

To say that pace of growth is out of the ordinary would be an understatement.

In the last year alone, Tesla's share price has rocketed upward more than 700%, delighting Tesla's investors and loyal fans, while leaving many seasoned Wall Street analysts scratching their heads. Short sellers lost $38 billion over the course of Tesla's monumental 2020 rally.

That epic surge has made Tesla the most valuable car company in the world, catapulting it above and beyond Goliaths like Toyota and Ford. It has also given Elon Musk, Tesla's CEO of 13 years, the title of richest person on Earth, thanks to his significant stake in the company.

Why Tesla just won't quit

There are several factors driving Tesla's rally-to-end-all-rallies, and plenty of reasons Tesla bulls say they're optimistic about its prospects.

For starters, Tesla's growth has inspired confidence. After struggling to turn a profit for years, Musk's automaker just closed out its sixth consecutive profitable quarter and its first full year in the black.

In 2020, the company beat Wall Street's delivery estimates in multiple quarters, produced more than 500,000 vehicles (the most of any year to date), and began selling its fifth production vehicle, the Model Y, ahead of schedule.

Investors and analysts have reason to believe that Tesla's production capacity will grow substantially in 2021 as new manufacturing plants in Berlin, Germany and Austin, Texas get up and running. And many think demand for Tesla's cars will keep growing, especially in China - where the EV maker has already done exceptionally well.

Tesla also benefits from a general euphoria around EV stocks, as tightening emissions regulations around the world paint an increasingly clear picture of a future auto industry dominated by zero and low-emission vehicles. It has continued to cement its position as the dominant force in an EV market that's poised to grow considerably in the near future.

Read more: The S&P 500's decision to include ultra-volatile Tesla in the index is reckless and dangerous

A stock split in summer 2020, which made Tesla shares more affordable to individual investors (even while changing nothing about the stock's fundamental value), helped drive retail investor enthusiasm. And Tesla's addition to the S&P 500 later that year, a de-facto vote of confidence by the index committee which compelled funds that track the index to buy the stock, helped even further.

Tesla's biggest bulls also place immense value on Tesla's potential to make money outside of its core car business, even though those auxiliary undertakings haven't yet materialized. They say that a future autonomous taxi service, an energy-storage unit, and software developments like Tesla's long-awaited "full self-driving" mode could help the company realize profits unheard of in the car business, justifying its currently outsized valuation.

There's a final factor that can't be overlooked: outspoken chief executive Elon Musk. The eccentric, meme-loving mogul has inspired legions of loyal Tesla evangelists and investors, largely through his irreverent Twitter feed and other ambitious ventures like SpaceX, PayPal, and Neuralink. That's something no other automaker has, even though some have tried to mimic.

Tesla's sky-high valuation, many argue, isn't grounded in reality

Despite all of those potential upsides, many experts argue that the frenzy surrounding Tesla is nothing more than a bubble that will burst sooner or later.

By conventional measures, they point out, Tesla's valuation is completely out of whack with the rest of the auto industry. It has a price-to-earnings ratio (P/E) of 1,200, meaning that for every one dollar of earnings, Tesla enjoys $1,200 of market cap. For comparison, Ford's P/E is 22.74, while General Motors' is 17.84.

Tesla also doesn't sell even close to the amount of vehicles as the competitors its valuation now dwarfs. Tesla sold just shy of 500,000 cars globally last year. In the US alone in 2020, GM's total sales were more than five times that amount, while Ford sold nearly 800,000 F-Series pickups.

Wall Street analysts skeptical of Tesla's valuation also note that Tesla's margins aren't vastly different from the rest of the industry, and that Tesla is bound to face increasing competition from other automakers entering the EV space.

But industry watchers are, on the whole, split about Tesla's prospects. Some predict it will soar even higher, while others urge investors to avoid it at all costs. JPMorgan analysts said the stock is driven primarily by a "speculative fervor" in a note to clients late last year.

"You can play with the numbers any way you like, but one or the other of the required assumptions still seems very difficult to conceive in any imagined scenario," the analysts said. "Tesla shares are in our view and by virtually every conventional metric not only overvalued, but dramatically so."