Tesla's Model S is a great car. But at an average of about $100,000 each, how big is the market? That's a question many skeptical investors are asking. Source: Tesla Motors

There are plenty of investors who love Tesla Motors (TSLA -1.06%). At about $205 a share, the white-hot Silicon Valley electric car maker is trading at roughly eight times its revenues -- and over 50 times its expected 2016 earnings.

But there are also plenty of investors who hate Tesla Motors -- or at least think its very lofty share price is due for a big fall. According to Nasdaq, over 26 million shares of Tesla had been sold short as of the end of March -- more than a quarter of Tesla's total "float," or shares available for purchase.

What's that about?

Tesla has impressed so far, but now comes the hard part
Tesla isn't like other automakers, of course. Its share price doesn't reflect its sales and profits now. Tesla delivered just 31,655 cars in 2014, and lost $294 million on revenues of $3.19 billion.

But it expects big growth, and so do its investors. Tesla CEO Elon Musk has said that the company aims to sell 500,000 cars in 2020, and that it could be selling "millions" annually by 2025. Musk has even gone so far as to suggest that Tesla could have an Apple-like $700 billion market cap in 10 years, if certain (extremely ambitious) growth factors pan out.

The numbers seem wildly far-fetched. But Tesla has already done something far-fetched: The company has delivered a car that doesn't just rival the best products from the world's largest automakers, it actually out-does them in some respects.

There's no doubt that Tesla's Model S is a superb high-tech luxury-sports sedan, a huge achievement for a start-up company, even setting aside its innovative and practical all-electric drivetrain. And its ambitious battery "gigafactory" adds some cred to the idea that Tesla will be able to introduce a more affordable (and bigger-selling) Model 3 in a few years. 

The company's achievements so far give Tesla investors some reason to believe Musk's lofty talk about the future. But on the other side of the equation is this: The giant global automakers have caught on to Tesla's game. Fierce competition is coming -- and soon.

Giant automakers are already learning from -- and moving to out-do -- Tesla
Those 31,655 cars that Tesla sold last year are barely a drop in the global automotive bucket. Giants like Toyota (TM -1.08%), Volkswagen (VWAGY), and General Motors (GM -0.47%) all sold over 9 million cars last year.

And all three of those giants are, in different ways, gunning for Tesla.

VW is planning a direct assault on the Model S and Tesla's upcoming luxury SUV, the Model X, with electrified luxury models for its Audi and Porsche brands. An all-electric Audi SUV with Tesla-like range and performance has been promised by 2018, and a battery-electric Porsche sedan could follow shortly thereafter.

Tesla's next car will be the Model X SUV. It's expected to launch late this year. But giant rivals are already moving to take it on. Source: Tesla Motors

Toyota, which has plenty of experience with battery-electric hybrid cars, is making a different bet. Its new Mirai sedan is powered by a hydrogen fuel cell, a device that converts the energy in hydrogen gas to electricity. Toyota officials say that the long recharging time of battery-electrics (including Teslas) will prove an obstacle to widespread adoption, and the five-minute refueling time of the Mirai makes its fuel cell a "better battery."

Meanwhile, GM is looking to pre-empt Tesla's mass-market Model 3 with its Chevy Bolt, an electric car that is expected to have about 200 miles of range for about $30,000 after federal tax incentives. That should roughly match the baby Tesla's expected range, while almost certainly beating it on price. And GM is widely expected to adapt its already-pretty-good plug-in technology to more premium vehicles, including most Cadillacs, over the next few years.

The Cheyv Bolt will be a significant advance over the current mass-market electric champ, Nissan's (NASDAQOTH: NSANY) Leaf, which has an EPA-rated range of just 84 miles. But Nissan promises that the next-generation Leaf, due for 2017, will have significantly more range -- possibly as much as 240 miles, making it yet another competitor for Tesla.

Will Tesla end up fighting for a slice of a small pie?
Publicly, Musk welcomes the competition, saying that all cars should be electric and the sooner the industry gets on his bandwagon, the better. That's the bull case for Tesla: A massive switch to electric cars is inevitable, and Tesla is well-positioned to take a nice share of that future market. 

But many investors worry that the market share for plug-in vehicles (pure battery electrics and plug-in hybrids) hasn't grown a lot over the last several years. They're still niche products, and despite Tesla's very visible success there are no clear signs that that's set to change. Low gas prices plus automakers' ongoing successes in making gasoline-powered vehicles more fuel-efficient might be enough to keep most consumers from making the trade-offs needed to "go electric."

That, they argue, will leave Tesla fighting with vastly better-funded giant competitors for a bigger slice of a small pie. Tesla might well survive in such a situation, and it might well be profitable in time. But once the air is let out of those lofty growth expectations, won't its share price collapse?

That's the shorts' bet. We'll see if they're right over the next few years.