Tesla Motors Inc (NASDAQ:TSLA) shares jumped 3.04% in pre-market trading Tuesday to $204.25. In fact, the stock has surged more than 435% over the last 12 months. The Palo Alto-based company is set to report its fourth quarter results on February 19 after the market close. Investors expect the company to beat the fourth quarter Wall Street consensus and issue strong guidance for the current quarter. Tesla Motors delivered 6,900 Model S sedans during the December quarter, compared to its own forecast of slightly less than 6,000 deliveries.

Tesla Motors TSLA

What investors need to think about Tesla

Investors are tempted to pour money into an innovative company that’s at the heart of an emerging industry. In most cases, these stocks are exuberantly priced. Hordes of investors pushing up the price of a nascent company shows that it may be an example of irrational exuberance, says analyst Jeffrey Himelson.

In the past, there have been several companies that were once a front-runner in an emerging industry with vast growth expectations. For example, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) occupied 50% of the smartphone market share in 2007 and its stock reached $230 in the same year. The Canadian company had a clear advantage – it was the first smartphone company. But today its stock is trading near $9. Similarly, investors had very high expectations with First Solar, Inc. (NASDAQ:FSLR), which was one of the first big solar energy companies. Its IPO was priced at $20 in 2007, and the stock jumped above $300 by 2008. The company was expected to dominate the solar market, which proved to be difficult in a competitive environment. And today First Solar trades at around $53.

Another example is Zynga Inc (NASDAQ:ZNGA). It was a leader in the social gaming industry, as the company introduced many blockbuster games. Though its IPO was priced at $9, the stock jumped above $14 after a few months of going public. The stock is trading near $4 today. In all these cases, investors didn’t realize that when success comes, competition definitely follows. Every time people argue, “this time it’s different.”

Competition to follow Tesla

Tesla Motors Inc (NASDAQ:TSLA)’s Model S is priced at $70,000, which a large group of consumers can’t afford. Though the company is expected to launch a Gen III car with a $35,000 price tag, that’s unlikely to happen until 2017. On the other hand, Tesla’s competitors such as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), BMW, Nissan and Audi have immense R&D budgets. It’s only a matter of time until one or more of them starts producing comparable or superior electric cars. Audi is reportedly working on Q8 e-tron electric vehicle with a real-world range of 370 miles.

Many others boast of Tesla Motors Inc (NASDAQ:TSLA)’s Supercharger network. Of course, it’s brilliant! But it’s not compatible with the standard CHAdeMO system. There are only 74 Supercharging stations in the U.S., compared to 554 CHAdeMO stations that charge vehicles like the Mitsubishi i-MiEV and the Nissan Leaf.

It’s extremely risky to believe that Tesla Motors Inc (NASDAQ:TSLA) will rule the EV market and continue to grow rapidly in this fiercely competitive environment.