Why not? If this is a short squeeze, wouldn't there be a balancing market incentives to short the short squeeze?

Yes. And there might be even larger forces like people seeing Tesla going up and just wanting to buy buy buy that throws off the balance again and keeps it moving up. So you can short it, and you might be right that the stock will crash within a few months, but Tesla likely isn't cheap to short, and if the price rises up in the meantime to the point that you can't afford the collateral to short anymore, you might find yourself desperately trying to buy back your shares to close your position to avoid bankruptcy and in the midst of another squeeze.

Unless you know that all the panic buying has stopped there's no way to know when the stock will stop going up. Not only are the shorts buying but all those that feel they are missing out are buying too. It's a hit or miss situation now.

Unless you happen to have a magic crystal ball, it's a purely speculative gamble. Nothing about tsla's price is rational right now. The people who shorted yesterday probably thought the same thing...