Tesla's greatest strategic asset is also its greatest risk: the cult of Elon Musk.

Every quarter, Tesla's financial reports echo the same refrain, "We are highly dependent on the services of Elon Musk, our Chief Executive Officer."

"What makes founders [like Musk] so interesting is they have an idea that everyone tells them can't be done," Lou Shipley, a serial tech entrepreneur and professor of strategic management at Harvard and MIT, told Business Insider. He's also a Tesla shareholder — and driver.

"That's why he's having so much fun, because everybody thought he was wrong, and he's proving to be pretty right," Shipley added.

Betting against Musk this year has been a losing game — a $20 billion one. TSLA short sellers are on track to see record losses as the share price continues to defy all laws of financial gravity.

The company's share price not only increased tenfold in just 13 months, briefly touching a record high of $1,795, but also surpassed every other automaker to become the most valuable car company — worth more than Fiat Chrysler, General Motors, and Ford combined.

Tesla continued its streak of profitable quarters on Wednesday, beating Wall Street's expectations for the period that was marked by complications from coronavirus shutdowns. 

Musk with Tesla's Cybertruck. FREDERIC J. BROWN/AFP via Getty Images

A transformational year

When you consider how big a year 2020 has been for Tesla in the stock market, two numbers stick out: $1,795 and $420. The first is Tesla's aforementioned all-time high, and the second was mentioned in a famous tweet by Musk about two years ago, when he said he was considering taking the company private for $420 per share, with "funding secured." (The funding wasn't secured, the Securities and Exchange Commission found.)

Tesla's stock price stayed in the $200 to $300 range for much of 2018 and 2019, but it hasn't dipped below the $420 level for all of 2020. In fact, it has skyrocketed past it.

The company has some impressive results to brag about too. It launched the Cybertruck to much fanfare in November 2019, snapping up over a quarter million preorders within a week despite not having a dedicated factory for it yet.

Then in February, Musk was able to raise another $2 billion in equity, easing much of the pressure on the company's finances from a staggering level of expensive debt. Before its unprecedented 2020 stock rally, Tesla had been reliant on high-interest junk-grade debt for cash to fuel company growth. And since Musk and Co. raised billions from the sale of new shares, the stock has only strengthened.

As the coronavirus pandemic sent the US auto market reeling, Tesla managed to beat sales expectations in its first-quarter results. It was also the first time in company history that Tesla reported a profit in the "seasonally weak" first quarter.

The months of January through March were largely unaffected by the coronavirus pandemic, though, and investors and observers alike are keenly watching out for second-quarter data next week, as rumors swirl about Tesla cracking into the S&P 500. Indicators for April in particular have been historically bad for many other segments of the global economy.

Given that Tesla didn't even turn an annual profit last year, there's still a yawning gap between its business fundamentals and share price. Something else is going on.

The cult of Tesla takes hold in 2020

Auto-industry executives and professional stock watchers don't have a clear explanation for the cult of Tesla, and how the company has tripled its share price in the past 12 months.

"The rise in stock price and the fact that Tesla is worth more than Fiat Chrysler, General Motors and Ford combined — is worth more than Volkswagen and Toyota — has nothing to do with reality," Bob Lutz, who served as executive vice president at Ford, vice chairman at Chrysler, and vice chairman of General Motors, said in an interview with CNBC. Still, Lutz agreed that Musk has done "a brilliant job."

Robert Bacarella, a vice president and portfolio manager for the growth-oriented investment firm Monetta Financial Services, told Marketwatch, "The stock is not trading on a multiple of today's or tomorrow's earnings. It is trading on a multiple of Elon Musk's dreams."

Another person perplexed by the incredible run in Tesla's stock price is, apparently, Musk. "Tesla stock price is too high imo," he tweeted on May 1, predictably sending the stock price down, though only for a few days.

Lately, Tesla appears to be enjoying a tailwind from a pandemic-fueled day-trading trend that has many amateur investors piling into the stock. Data from the analytics website Robintrack shows that the number of Robinhood app users holding Tesla shares roughly doubled over the past month alone.

This type of trading frenzy can lead to a more volatile stock price, as well as an unusual situation where the kind of genuinely good news Tesla has been reporting kicks off outsize surges in its share price, instead of the kind of slight lift it enjoyed in "funding secured" times.

And it doesn't show signs of slowing down. The Wall Street firm Piper Sandler predicted another 55% boost in the stock to $2,322 last week.

A software company that makes cars

One possible reason for Tesla's astronomical valuation is that the company is a software developer that happens to make cars, Shipley said in a February article in the Harvard Business Review.

"I can tell you General Motors is not a software company," Shipley told Business Insider. He would know — as a software CEO himself, Shipley has sold a lot of code to GM. This lack of original integration creates challenges that limit the future prospects of a conventional car company, all the way from design to distribution.

Tesla, by contrast, has a software developer's ethos baked into every aspect of its business, Shipley said.

The key software-inspired innovations Shipley cited were how the company takes an incremental approach to its product design, its direct-to-customer sales and service strategy, and its increasingly vertical integration of battery technology and other core components.

"All the auto companies realize now the battlefield is going to be won on software, and now they have to become software companies. That's really hard," Shipley said." I'm not saying they're not innovative, but they didn't do it through software."

A brand that runs on FOMO, boosted by 'true believers'

Software companies generally enjoy higher price multiples than automakers, but Tesla is a lifestyle brand too, Shipley said. That could help explain part of the spread between what the financial math says and how the stock has performed.

"If I have a Tesla, I'm different. It's like if I have an Apple product, I'm different," Shipley said.

Since the launch of the original Roadster in 2006, Tesla has used social exclusivity and the fear of missing out (FOMO) to fuel interest in the brand. Members of its in-crowd, legions of self-described "true believers," forgive Musk's unconventional personal and management style. (Some even volunteer to deliver new cars worth up to $124,000 to customers on behalf of the company.)

At the Roadster's star-studded Hollywood launch, A-listers could prepurchase the first 100 units made and signed by Musk and his cofounders. And in 2019, after Tesla announced the three available options for the Cybertruck, it gained valuable customer data when fans quickly gravitated toward the two- and three-motor models over the single-motor one. Thanks to these stunts, Musk famously spends zero dollars on paid advertising. 

Combine Tesla's three successful and growing identities — manufacturer, programmer, influencer — into one stock, and the story begins to make sense, even if it may be distorted by the pandemic-era day-trading craze.

"This is only for those with strong constitutions," Shipley said. "I'll stick with Treasury bonds for my mom, but for me and for my kids, that's where I would be, because I have a long-term investment horizon, and I have a high degree of risk tolerance."