No automotive company could ever spring from the humble start-up status to compete with the well-capitalized experienced automakers that have ruled for decades, auto industry veterans have argued. And even in spite of Tesla's (NASDAQ:TSLA) rapid growth so far, the argument still makes rounds in an evolved form. These days, the argument goes something like this: As soon as peers decide to crush Tesla with their superior economies of scale, the electric-car maker's success will be numbered -- or at least limited to a niche market.

Meanwhile, clearly stated in Motor Trend's first review of Tesla's newest car is bold declaration: Germany has just been ousted by Palo Alto as home to the highest performing sedan.

Model S. Source: Tesla Motors.

Is the auto industry underestimating Tesla?

A quiet revolution?
For a new automaker, Tesla sure has quite the ability to garner praise and set new standards. But if the car's long list of accolades in 2013, the fact that it's the safest car ever made, or its mind-boggling satisfaction scores at Consumer Reports weren't enough to convince you that the automaker is here to stay and destined to make a dent, then maybe Tesla's newest addition to its lineup will.

Tesla is calling it the P85D, "P" for performance, 85 for 85 kWh battery, and "D" for dual motor. The key difference between it and Tesla's previous flagship Model S is the dual motor performance, which also makes it all-wheel drive. But there are more benefits to Tesla's dual motor drive system than all-wheel drive. The car's horsepower was bumped from 470 to 691 and its 0-60 time improved from 4.2 seconds to 3.2 (Motor Trend says it's actually 3.1). Even more, the increased efficiency in the dual motor system added 20 miles to the car's all-electric range, boosting it from 265 to 285.

Tesla sells the Model S in a dual motor or rear-wheel drive configuration for its 60 kWh battery, 85 kWh battery, and 85 kWh battery performance models. Source: Tesla Motors.

Yes, the car is expensive. You'll need to fork out $105,670 to get your hands on Tesla's new flagship model. But, for a supercar with 5+2 seating, the value proposition is beginning to make competition from peers in the luxury sedan category look underwhelming. This, of course, is why Tesla's order backlog is still growing faster than it can ramp up supply -- even as the carmaker spends no money on advertising.

After its first test drive in the P85D, Motor Trend's Kim Reynolds doesn't hold back in its praise of the P85D Model S:

How will the psychological landscape among the One Percenter Mercedes-Benz AMG, Audi RS, and BMW M crowd be recast if, when a Tesla Model S P85D rolls up at a light, it's game over, guys? Brace yourself, Teutonic Status Quo, because the quickest-accelerating sedan in the world isn't German anymore. It's from California. As they say in Palo Alto: Auf Wiedersehen!

Despite its short tenure as a successful automaker, Tesla is already teaching its established peers a lesson in performance. Is there still enough room to argue that Tesla can't thrive in a world of automakers with over a century of experience?

Bias! Bias! Bias!
Yes, I own Tesla stock. Sure, this may make me a bit biased to Tesla's technology. But don't let that fact fool you into believing I'm not digging in to find out the truth about whether or not Tesla has a chance at competing with the big dogs. Having money on the line compels me take a hard, close look at the real competitive landscape that threatens to keep Tesla from continuing to raise the bar higher.

Investors following Tesla should be careful not to make the mistake of turning a blind eye to its clear trajectory toward building a suite of cars that are downright superior to the automobiles we know today. If automakers don't start responding fast, Tesla will have officially pierced a hole in the economies of scale that have been protecting big auto players for a century. And if automakers do respond with high-performance electric competition, then the electric vehicle market will receive a big dose of investment, and Tesla will likely benefit.

Rendering of Tesla's planned Gigafactory. Source: Tesla Motors.

With Tesla's all-electric vehicles changing the way we look at high performance, the construction of Tesla's $5 billion Gigafactory under way, and a lower-cost Tesla only a few years from release, the question no longer seems to be whether or not Tesla has a chance to make a big dent in the automotive market. The new question is this: How big will big the dent be? Small, or game-changing?