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All eyes on Tesla as it faces its biggest hurdle yet

Spencer Platt/Getty Images(NEW YORK) — Earlier this week, Tesla achieved a feat few thought possible: The 13-year-old electric car maker from California briefly became the most valuable U.S. auto company, pushing aside 108-year-old General Motors.

The accomplishment was short-lived, but it proved that Tesla had the backing of investors and would continue to threaten industry stalwarts GM and Ford. Tesla had already surpassed Ford in terms of market capitalization, and it was only a matter of time before it would dethrone its next big American rival.

"GM was in its sights," said Michelle Krebs, an executive analyst at Autotrader. "Tesla is viewed differently than the traditional automakers by investors — 'Tesla is a tech, Silicon Valley startup, [and] GM and Ford are industrial, manufacturing.' But Tesla is an auto manufacturer."

Part of the reason shares of Tesla spiked 3 percent on Monday to $313.73 was an upgrade from Piper Jaffray analyst Alexander Potter, who raised his price target from $223 to $368, a 65 percent increase. Tesla's market valuation reached $51.05 billion that day, a hair above GM's $50.96 billion market cap, according to FactSet.

"[Tesla] seems to play by its own rules," he wrote in a research report. "The company burns through cash at a rate that better-established companies will likely be crucified for — especially considering [Tesla's] rickety balance sheet and penchant for raising equity."

"In the minds of its customers, employees and shareholders, Tesla isn't just another company," Potter continued. "Tesla engenders optimism, freedom and defiance ... As [competitors] scramble to catch up, we think [they] only make themselves appear more desperate," he said.

Krebs said investors are betting that Tesla will become profitable in the future and even more successful despite the hurdles facing the company.

"There is no consumer appetite" for electric cars, she explained, pointing out that electric cars, hybrids and plug-in hybrids make up just 3 percent of the U.S. auto market combined.

"This is not going to change," she said, citing Americans' preference for sport utility vehicles.

Stephanie Brinley, a senior auto analyst at IHS Automotive, said Tesla still needs to finds its way.

"It's a growing company and needs to scale up quality," she told ABC News. "We'll see how Tesla is impacted if incentives [for electric cars] go away. Tesla has pushed the conversation on electric and luxury cars ... but only in certain pockets [of the country] do you see a lot of Teslas."

The company has 50 stores in the U.S., versus thousands of GM dealerships. GM sold more than 9.8 million vehicles in 2016, compared with nearly 80,000 for Tesla.

Elon Musk, Tesla's founder and CEO, believes more Americans will embrace his all-electric vehicles. The Model 3 sedan, which is scheduled to begin production this summer and start deliveries as early as mid-2018, can make Tesla a mainstream competitor, Brinley said.

Tesla has received more than 370,000 preorders for the Model 3, which will cost $40,000 to $45,000, depending on a customer's specs. [The higher-end Model S goes for nearly $90,000, after options are added.]

Moreover, Musk has said Tesla will ramp up production of all vehicles, to 500,000 in 2018. Tesla's output in 2016 was 83,922 cars.

In his note, Potter, who called Tesla stock "risky," acknowledged that any glitches would be unlikely to sway consumers from the company.

"Even if the Model 3 production launch goes badly, we think customers (and more importantly shareholders) will withhold judgment," he wrote. "Tesla's shareholders are almost as loyal as Tesla's customers."

A successful launch does not guarantee that the company will be in the black, however.

Tesla reported a loss of $773 million last year and has yet to turn a profit. According to Potter, Tesla could pursue even more growth projects, given enough capital.

Looking farther down the pipeline, Tesla said it plans to unveil the Model Y — a cheaper and compact crossover based on the Model 3 platform — later this year. That will be the company's fifth launch since its inception.

Even as GM and Ford have reported healthy sales over the last few years and have invested heavily in research and development, both companies have been slighted by investors. Shares of Ford are down more than 15 percent year to date, and GM stock has fallen nearly 10 percent. Tesla shares? Up 35 percent.

"Elon Musk is a charismatic person. He can move the stock," Krebs said. "We don't have a lot of business leaders like that."

She continued, "No one was doing what they were doing [in the beginning]. It's become a strong, cultlike brand."

As for GM and Ford, "I am sure that they're frustrated that their stock prices aren't higher. But [Tesla's stock price] doesn't change how they do business," Krebs said.

Tesla declined to comment on its share price.

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