Tesla (TSLA 2.99%) has taken the market by storm in just a few short years. The electric-vehicle (EV) stock is up nearly 2,000% in the last few years as the company went from a cash-burning niche player to the leader in the biggest transition in automobiles in a century.

EVs are going mainstream, and Tesla is the reason why, but the stock isn't just up on hype. The automaker has delivered both strong revenue growth and profitability. In Tesla's first quarter, revenue jumped 81% to $18.8 billion, and operating income rose more than six times to $3.6 billion. Operating margin ramped up to 19.2%, well ahead of any other major automaker.

Tesla's success has sparked a boom in electric-vehicle stocks, including traditional automakers like GM and Ford, which are pivoting to EVs. In fact, there's no shortage of EV start-ups that have been dubbed the "next Tesla," including Rivian (RIVN 8.05%)Lucid (LCID 25.00%)Nikola (NKLA -0.10%), Nio, BYD and Polestar, which is soon to go public through a SPAC merger with Gores Guggenheim.

While there will almost certainly be other successful electric-vehicle companies, there won't be another EV stock with eye-popping returns like Tesla. Here's why.

A Tesla Model S on the highway

Image source: Tesla.

Tesla is the disruptor

Tesla went from a market cap of around $50 billion to north of $1 trillion in just about two years because it successfully disrupted a massive industry. The company is nearly 20 years old now and has been public since 2010, but it wasn't until 2020 that it reached a tipping point where profitability was assured and the market was convinced that electric vehicles were the future of the automobile industry.

Tesla stock was able to gain 2,000% in a short period of time because the market gave long odds to its success. In fact, in 2018 and 2019, many of the headlines on Tesla focused on its cash burn rate and its chances of going bankrupt. Today, it's a much different story, and the unlikeliness if its success, at least in the market's eyes, is as much of a reason for the stock's monster returns as is the success of the business itself. Though hype played a role in the stock's jump, at this point the valuation is well-supported by the fundamentals as the stock is trading at a forward P/E of 60 with an expected 60% revenue growth this year.

But now that Tesla has disrupted the auto industry, it can't be disrupted again, or at least not in the same way. Rivals like Rivian, Lucid and the other Tesla wannabes don't have anything to disrupt electric vehicles because they're already going mainstream. All they have to do is follow the path that Tesla has paved for them and enjoy the sky-high EV valuations that Tesla's success has created for the industry. While there's room for improvement in any product, the magic moment of proof-of-concept in EV's has already happened, thanks to Tesla, and that can't be repeated.

There's a reason why many of the most successful stocks of the 21st century were disruptors. These are stocks like Amazon in e-commerce and cloud computing, Netflix in video entertainment, and Apple in telephony. It's very hard to disrupt an entrenched industry, and the market is generally skeptical of would-be disruptors until they've proven themselves. Like Tesla, Amazon and Netflix were unprofitable for much of their histories, which increased the market's odds against them, helping them deliver huge returns in the long run.

Going from a start-up to successfully disrupting a massive industry will usually result in fantastic returns, but the market is also skeptical of disruptors because most of them fail.

The Tesla effect

As stocks, one of the most important differences between Tesla and its EV challengers is its valuation. Tesla's success distorted the market for EV stocks, and there's an enormous gap between challengers like Rivian and Lucid, compared to Tesla when it had a similar market cap.

For instance, Tesla finished 2018 at a market cap of $57 billion. It had $21 billion in revenue and delivered 245,000 vehicles that year. Though it lost money for the year, it made a $414 million operating profit in the fourth quarter.

By comparison, Rivian's market cap briefly topped $150 billion shortly after its Initial Public Offering (IPO) last November, even though it had only begun selling vehicles two months earlier. Similarly, Nikola's market cap was $30 billion at one point without having sold a vehicle, and Lucid flirted with a $100 billion market value late last year, even though it only began selling cars last fall.

In other words, these stocks were priced for perfection in what now looks like clear signs of market exuberance. Take a look at how these stocks have fared in the last few months. 

LCID Chart

LCID data by YCharts.

While Tesla is down over the last six months, tracking with other growth stocks, the rest of the EV sector has come crashing down and could still fall further. Unlike Tesla a few years ago, these EV companies face intense competition in electric vehicles, including against traditional automakers, and many of the start-ups are unproven, since they only recently brought their products to market. By contrast, Tesla has been selling electric cars since 2008.

With the level of competition in EVs now, it's unrealistic to expect there to be another trillion-dollar EV company, and it won't be easy for Tesla to maintain its valuation, either.

How to find the next Tesla

The next Tesla won't be in EVs. It won't be in an industry that's already been disrupted. Instead, it will be a company that went public for a small market cap and is challenging incumbents in an industry with a large addressable market.

Most investors will be skeptical of its success, and it will probably be losing money, despite an impressive growth rate. In other words, it will have a number of the hallmarks of Tesla, but operate in a different industry and sell a different product.

Finding the next Tesla won't be easy, but if you're looking in the electric-vehicle sector, you're looking in the wrong place.