The promise of self driving is what's driving Tesla stock.

Two things can happen:

The dream is a bust, and Tesla is worthless.

Or the dream pans out, and almost all other car companies are worth a lot less.

Unless you absolutely want to believe that either self driving is impossible, or Tesla is uniquely unable to achieve it, the valuation is not entirely unwarranted.

Put shortly, Tesla is not a car company, it's a bet on self-driving cars.

There's a simple third option you omitted:

Tesla is not the only company to achieve self-driving, and all companies that achieve it share the market with them.

(Or the fourth option, it will take decades for self-driving to take even a significant market of "driving" as humans continue to want to own and drive cars rather than short-term rentals.)

A more likely outcome is that all major auto manufacturers offer self driving. Ford and Mercedes already have Level 3 systems. Toyota is working with Waymo. Several Chinese automakers have self driving, at various levels of quality. It's going to become a routine feature of cars. Tesla isn't even the leader.

This is the Pascal's wager of stock arguments.

It omits a lot of other scenarios that increase the actual risk of betting on Tesla...

Self-driving becomes a commodity and so there's no unique Tesla win.

Self-driving becomes something only Tesla controls but (in the fleet/rental model) doesn't bring back returns to justify this investment because of extremely high capital, maintenance, regulatory, or other costs.

Self-driving becomes something only Tesla controls but (in the personal-owner model) doesn't bring back returns to justify this investment because it doesn't motivate the entire world to splash out on new vehicles overnight and also doesn't override other existing biases/preferences.

Self-driving is won by someone else (maybe someone with less religious views about Lidar, say) and Tesla no longer can even sell that promise.

Those are just the ones that occur to me in a few minutes!

Well, they don't have a self-driving car but they do have a self-driving share price!

Framing it as unwarranted to not think "Tesla is uniquely unable to achieve it"...? Seriously?

The real question is if Tesla is uniquely ABLE to achieve it, above others in the market... including new startups or tech/auto-maker partnerships which may yet form.

Tesla has some supply chain innovation, but none of what they do can't be replicated... and Musk's slavish commitment to video as opposed to LIDAR is hobbling them.

This omits the fact that Musk has slashed costs in critical areas of Tesla cars, notably in relying only on visual sensors.

They abandoned the hardware most promising to help enable self-driving.

Waymo is 5 years ahead of Tesla, but Tesla has 50% of Google's market cap, with 10x the P/E.

So something isn't being priced correctly.