Tesla Motors, the Silicon Valley electric carmaker, is riding high. The company reported its first ever quarterly profit this month and saw its stock price shoot upwards of $97 per share—an all-time high. At more than $10 billion, the company's market value is now greater than that of established automakers Fiat and Mitsubishi Motors.

And for icing on the cake, Tesla's first made-from-scratch car, the electric Model S sedan, has received a rare near-perfect score from Consumer Reports. Noting the difficulty of starting a successful auto company, evoltven Bill Ford, the executive chairman of Ford Motor Co., commented, "My hat's off to them."

The company is preparing to take advantage of its popularity on Wall Street by raising an estimated $648 million by selling a combination of shares and debt-like securities, to be repaid in 2018. Tesla CEO Elon Musk is set to personally purchase $100 million of shares in the offering. Tesla will curry public favor by using part of the proceeds to prepay some of the $465 million U.S. government loan that helped establish manufacturing of the Model S.

Tesla's upsurge comes at a time when a once-bursting field of EV start-ups is becoming littered with failed or sputtering ventures. Meanwhile, the established automakers have mixed sales results with their EVs, although customer satisfaction has been high. Nissan has seen accelerating sales of its Leaf after a slow start, with more than 62,000 of the EVs sold worldwide since 2010. For the Chevy Volt, a plug-in hybrid with a small gas engine that kicks in when its battery runs low on charge, sales of some 26,000 have not quite met General Motors' expectations. The cold reality is that the electric car business is still a work in progress. GM has said it loses money on every Volt sold. And much of Tesla's recent profit is due to California's regulatory incentives, rather than the sale of automobiles.

More than any other company, Tesla has helped transform the popular image of electric cars as nerdy golf carts for do-gooder greens to something that can be fun and luxurious and packed with cutting-edge technology. It pioneered a new generation of electric cars. Whether Tesla can rally mainstream consumers to the world of electric mobility, however, remains to be seen.

A Winner and Losers

Tesla's recent success marks a major achievement for the company and a rare moment in the history of automotive entrepreneurship. "Almost every other person who has tried to enter the automotive industry" for close to a century has failed, said Phil Gott, an automotive analyst for the research firm IHS.

Certainly the experience of other EV start-up companies bears out the challenges. Fisker Automotive, the recipient of roughly $1 billion in private investment and $192 million in public funds, sold only about 2,000 of its plug-in hybrid luxury Karmas (priced from $102,000) before suspending manufacturing last year. The U.S. Department of Energy has pulled the plug on the rest of the half-billion-dollar loan originally awarded to Fisker in support of a plug-in hybrid sedan that never made it past prototyping. And Coda Holdings, parent company of the Southern California-based startup that set out to build affordable electric cars on a platform from China's Hafei Motor Co, has filed for bankruptcy after selling fewer than 100 cars and racking up $100 million in debt.

Would-be suppliers of batteries to these and other electric carmakers have fallen along the way. Fisker's battery supplier A123 Systems entered bankruptcy last year, as did Ener1, battery supplier and investor in a failed electric city-car effort by Norway's Think Global.

Tesla, too, has seen hard times. In its ten-year history, the company has experienced product delays, lawsuits, battery and transmission troubles, and coffers so low that it took a hefty portion of billionaire CEO Elon Musk's personal wealth to keep it afloat in 2008. "Just want to say thanks to customers & investors that took a chance on Tesla through the long, dark night," Musk tweeted last week. "We wouldn't be here without you."

Tesla, it's fair to say, has leveled up. The company is now at the point of building cars in its own facilities from the bottom up, thousands of them each month. Based on monthly sales data, the advocacy group Plug In America expects the generation of highway-capable plug-ins born in the last two years to reach 100,000 vehicles sold by the end of May. More than 7,500 of those are Model S sedans, which sell for about $70,000 to $100,000, depending on the size of the battery and options.

Mass Market and Upmarket

Nearly every major automaker has a pure electric model on the road or soon to launch. Many of them are derived from conventional models like the Chevy Spark, Honda Fit, and Fiat 500, and several will initially sell in limited numbers in only one or a few markets—most notably California, where large automakers are required to sell zero-emission vehicles. Others have aimed for a broader swath of the market. Nissan moved early on to sell its Leaf nationwide, and adoption has begun to accelerate beyond the historical EV capital on the West Coast, and the electric version of the Ford Focus now sells in 48 states.

Distinguishing itself from this pack, Tesla from the start cultivated an aspirational brand, modeling its retail experience after Apple's sleek stores and targeting elite customers who would drop six figures on an electronic gadget with a green aura. The company's inaugural model, the Tesla Roadster, wasn't for everyone (the tall or weak of budget, to start) or every purpose (no dice if you want to haul all the gear for band practice), but it looked sleek and drove like a dream.

To a wealthy and tech-savvy niche group, it was perfect. "For that target audience, the more exclusive, the more expensive, the more exotic, the better," said Gott, senior director of long range planning for IHS Automotive. Sure, the Roadster was more expensive than the Lotus Elise body it was based upon, but it was unique. "Cocktail conversation" about the Tesla technology and VIP quality of service, Gott said, was part of the attraction of owning one.

Analysts say that Coda and Fisker erred in opposite directions: one was too superficial, the other was not superficial enough. "Fisker's biggest mistake was thinking that design was everything," said Michael Omotoso, senior manager of global power train for the research firm LMC Automotive in Troy, Michigan. The Fisker Karma is a great-looking car that drew Justin Bieber and Leonardo DiCaprio among its earliest adopters. But it had serious flaws, including unimpressive fuel economy relative to other plug-ins, too much weight, and a price point above even luxury hybrids that wealthy buyers might consider as alternatives, such as the Mercedes-Benz S Class or Cadillac Escalade hybrids.

In contrast, Coda aimed early on to provide an electric version of the most basic sedan. The practical look and good-enough performance became a tough sell, however, as the company's costs and price estimates swelled. Once expected to sell for about $30,000, the Coda Sedan ultimately debuted at roughly $45,000. Whereas Tesla and Fisker marketed Louboutin-like luxury style and charged accordingly, Coda put out a generic look and charged designer prices.

After multiple delays during years in which the options available to EV shoppers in the United States grew from a solitary highway-capable model (the Roadster) to around ten in 2013, the Coda launch simply offered too little too late. The car ranks dead last in efficiency among all pure electric vehicles in the 2013 model year, racking up an estimated $850 in electricity costs each year. That's pretty good compared to top-selling conventional sedans like the Honda Accord, but not compared to the $500 annual fuel costs estimated for the Nissan Leaf, Fiat 500e, and Honda Fit EV, and Scion iQ EV—all of which carry a well-known car company's brand and warranty. To make matters worse, in the midst of its bankruptcy proceedings, Coda now has a "potential safety issue" on its hands and must issue a recall. Regulators have reportedly found in crash testing that side curtain airbags in the sedan "did not deploy as intended upon impact."

Aside from starting at the high end, Tesla also developed other streams of revenue in addition to building and selling cars. The company formed key partnerships with well-known automakers, including Mercedes-Benz and its parent company, Daimler, as well as Toyota. In the first three months of this year, Tesla reported $7 million in revenue from development services. Another $68 million, or roughly one in every eight dollars of revenue during the quarter, came from selling credits earned under California's zero emission vehicles (ZEV) program. About $17 million came from sales of "other regulatory credits."

But these credits are more of a bridge to a bigger vision than a lasting pillar of Tesla's business. "Right now, their profits come from selling EV credits to other companies," said Omotoso. "They need to start making money by selling cars." As Tesla recognized in its latest report to shareholders, ZEV credit prices are falling as more automakers come out with qualifying vehicles, and international sales are worth less in the ZEV credit market than U.S. sales. So as Tesla pursues global ambitions, the company expects the portion of its revenue coming from ZEV credits to decline.

Next in the pipeline from Tesla is an electric crossover called the Model X, which, after some delay, the company plans to roll out in late 2014, likely with a lower price tag than the Model S. Sales of this third-generation model "should help," said Omotoso, because one model is simply not enough to sustain a company for the long term. "The Model S is hot right now, but it will eventually cool off like all hot models. Then what?" he said. "Once the small group of wealthy, image- and environmentally conscious buyers have been satisfied, they have nowhere to go until they come out with another model." Based on the limited pool of buyers who can both afford the Model S and who want an alternative-fuel vehicle, he said Model S sales may already be close to peaking at an estimated 20,000 units in 2013.

As many gauntlets as Tesla has run so far, the company's biggest challenges may still lie ahead. The temptation to go too big, too fast—to think, "Gee, if I can make this much money selling hundreds of cars, think how much more I can make selling millions"—is a dangerous one, Gott said. It will take time for battery technology to advance to the point where is possible to sell a "no-compromise" electric car capable of driving hundreds of miles between charges at a competitive price point.

Electric cars today can meet many, if not most day-to-day mobility needs. They can spare drivers pain at the pump, and Tesla is building out a network of fast-charging stations for extra assurance and convenience on the road. But gasoline remains the default choice for most car buyers, and switching to electricity still requires some new habits and a different mindset. "Most customers don't buy technology. They buy utility, convenience, low-operating costs, style," said Gott. If Tesla's business plan anticipates and keeps pace with the evolution of batteries, he said, and "if Tesla can walk that tight rope without over-investing and losing money before the market is ready, they will succeed."