After betting on Trump's success, Musk's "Robotaxi business" could be successful as hoped?

With the electric car sales of Tesla, Inc. (TSLA.US) stabilizing this year, CEO Musk is increasingly betting the company's future on the vision of a robotaxi for autonomous driving. However, in achieving these visions, this electric car giant still faces huge technological and regulatory obstacles. However, as one of President-elect Trump's biggest supporters, Musk may now have the influence to push through these regulatory barriers. Tesla, Inc. is currently facing a diverse array of state laws on autonomous vehicles, and Musk criticized these laws during a financial conference call on October 23, calling the process of implementing regulations "extremely painful" on a state-by-state basis. He stated that if Trump wins and fulfills his promise to put Musk in charge of an efficiency department, he will advocate for a federal approval process. Musk said: "If there was an efficiency department in government, I would do my best to help accomplish this goal." On Tuesday, Trump fulfilled his promise, appointing Musk and another ally to lead a non-governmental entity called the "efficiency department." It is currently unclear how this organization will operate. According to analysts, Musk's influence may go beyond efficiency. According to a source familiar with Musk and Trump's transition plan, the billionaire donated at least $119 million to a pro-Trump organization during the election, which is expected to influence the President-elect's choice for the next Secretary of Transportation. This department includes the National Highway Traffic Safety Administration (NHTSA), which is responsible for regulating car manufacturers and could potentially drive significant changes in autonomous driving rules at the national level. However, based on interviews with nine regulatory and legal experts and a review of autonomous vehicle laws in various states in the U.S., even if Musk gets favorable regulations, Tesla, Inc. still faces serious technological and legal obstacles in deploying autonomous vehicles, as well as issues surrounding insurance. Tesla, Inc. and Musk did not respond to requests for comment. Currently, Tesla, Inc. lags behind competitors in California by several years, which is Tesla, Inc.'s largest market in the U.S. so far and a major testing ground for autonomous vehicles. According to a review of California regulatory data, other companies have been navigating the regulatory "maze" in California and completed millions of miles of autonomous vehicle testing under state supervision. Experts in autonomous vehicle regulation suggest that if Musk can successfully obtain federal regulations or laws ahead of state regulations, this could allow Tesla, Inc. to bypass California's regulations. State records show that since 2016, Tesla, Inc. has only conducted 562 miles of testing, and since 2019, Tesla, Inc. has not submitted any reports on autonomous driving to California regulators. In comparison, Alphabet Inc.'s Waymo recorded over 13 million miles of testing from 2014 to 2023, and has received seven different regulatory approvals, as well as approval to charge fares for autonomous taxi services. Waymo is one of only three companies in California with a commercial operation permit for autonomous vehicles, and the only one approved to operate the fleet of autonomous taxis envisioned by Musk. Waymo declined to comment on Tesla, Inc.'s regulatory strategy or its autonomous driving. Tesla, Inc. currently holds the lowest level of permit in California, allowing testing under the supervision of human drivers. Only six companies have been approved for autonomous testing. According to data in California, each company had at least one driver conducting three years of testing, typically involving millions of miles of testing, before obtaining approval for autonomous testing. For example, Amazon.com, Inc.'s Zoox recorded over 1.6 million miles within three years. General Motors Company's Cruise accumulated over 2.1 million miles in five years. Cruise declined to comment. Zoox stated that it also obtained a separate "pilot" permit for autonomous driving from California regulators, allowing the company to pick up passengers without charging fares. Phil Koopman, an engineering professor at Carnegie Mellon University and an expert in autonomous vehicle safety, said: "Tesla, Inc. still has a long way to go." He added that Tesla, Inc.'s current "Full Self-Driving" (FSD) system - which still requires a significant amount of attention from human drivers - is not yet ready to become an autonomous taxi. Musk has said that autonomous Teslas will be ready next year, echoing promises made about a decade ago. Since this spring, he has increasingly placed bets on robotaxi for the future of Tesla, Inc. Last month, Musk told investors at the Robotaxi launch event that Tesla, Inc. will deploy fully autonomous versions of its Model 3 and Model Y in Texas and California next year. He also unveiled a two-seater "Cybercab" autonomous taxi, which he said will go into production in 2026, priced at "around $25,000." However, due to the lack of specific product details in Musk's presentation, Tesla, Inc.'s stock price fell sharply the next day. However, since the U.S. election, Tesla, Inc.'s stock price has risen over 30%, with a market value increase of nearly $200 billion, as investors anticipate more favorable regulations for autonomous driving and artificial intelligence. "Billions of miles" Over the years, Tesla, Inc. has been lobbying for electric vehicle subsidies and other benefits. According to two people familiar with the company's strategy, over the years, in discussions with Congress and the NHTSA, the company has been advocating for federal standards for autonomous driving.Agreement was reached but not implemented, partially due to the existing divisions in Congress. In 2018, Tesla, Inc. signed a letter in support of a bill in the Senate that would prioritize regulation of self-driving cars over some states, however, the bill never received a full vote in the Senate.In recent months, Musk has become an important member of Trump's core circle. According to sources and videos released by Republican officials, Musk spent election night at Trump's private club, Mar-a-Lago, in Florida, and has been a frequent visitor to the Deluxe Corporation estate since the former president's victory on November 5th. Another source revealed that Musk attended at least one meeting at Mar-a-Lago to discuss appointing a senior cabinet position - Secretary of the Treasury. A spokesman for Trump did not respond to questions about autonomous driving regulations or Musk's influence, but stated, "Our federal bureaucracy will certainly benefit from his ideas and efficiency." Three legal and regulatory experts told Reuters that during the Trump administration, NHTSA could design standards for self-driving cars, but a key question is whether regulatory agencies can or will prevent states from imposing their own stricter rules. A Republican-controlled Congress could also enact a nationwide approval process to replace state laws. Traditionally, NHTSA oversees vehicle design, while states primarily regulate drivers and traffic laws, but with cars becoming drivers themselves, this distinction becomes less clear. Bryant Walker Smith, a law professor at the University of South Carolina specializing in self-driving vehicles, said that if NHTSA is "directed to achieve a particular political outcome," it could interpret its powers more broadly. Under Trump's leadership, NHTSA could pave the way for innovative designs, such as the Cybercab, which Musk introduced at an event as a car without a steering wheel or pedals. National self-driving car regulations are more important for Tesla, Inc. than its competitors, as Tesla, Inc.'s business model is different. Musk's strategy includes selling millions of self-driving cars that can operate anywhere in the world. Most other competitors, including Waymo, only operate limited, comprehensive maps of self-driving taxi fleets in specific cities. Waymo and other companies manufacture more expensive self-driving taxis equipped with redundant technologies and sensors, including radar and lidar. Tesla, Inc. relies entirely on "computer vision," trying to use cameras like human eyes and using artificial intelligence to turn images into driving decisions. During a July earnings call, when asked how to overcome regulatory challenges, Musk said Tesla, Inc. would have "billions of miles" of data to demonstrate that FSD is safer than human drivers. But so far, Tesla, Inc. has shown little to regulators. The California DMV said Tesla, Inc. had not sought the testing or deployment licenses necessary to drive self-driving cars on public roads. California's approval is essential for any debut of Tesla, Inc.'s so-called "self-driving taxi network" mentioned by Musk, which could provide taxi services owned by Tesla, Inc. and customers. About 37% of Tesla, Inc. cars on U.S. roads are in California. Waymo is currently the only company approved in California to charge passengers riding in self-driving taxis. This was not easy. Waymo first obtained a safety driver testing permit in 2014. Four years later, in October 2018, after recording over 2.2 million miles of testing, it obtained a self-driving testing permit. It took three more years and 3.7 million miles of testing to obtain approval from the California DMV to commercially operate self-driving cars in some areas of San Francisco and San Mateo County - with a human driver. State records show that Waymo received approval in August 2023 to charge customers riding self-driving Siasun Robot & Automation taxis in San Francisco, after recording 7.4 million miles driven. Waymo currently operates in Los Angeles and Phoenix. General Motors Company's Cruise also operates self-driving cars in San Francisco, but its license was revoked in October 2023 after an accident, where a Cruise car dragged a pedestrian hit by another car for 20 feet. Less regulation means more legal risks. Tesla, Inc. faces different but still challenging obstacles in states with less regulation, including Texas. Texas has almost no restrictions and explicitly prohibits cities from regulating self-driving vehicles. However, once Tesla, Inc. claims its cars are fully self-driving, it will face huge legal liability in the event of accidents. So far, the car manufacturer has been defending itself in accidents involving FSD and Autopilot in lawsuits and regulatory investigations, blaming drivers for not paying attention because the systems are not fully autonomous. Smith, the law professor at the University of South Carolina, said that if Tesla, Inc. is confident deploying autonomous technology in states with less regulation, like Texas, "they might do that." However, once you say humans don't need to pay attention, when it comes to accident liability, you're pointing the finger at yourself. Providing insurance for Tesla, Inc.'s self-driving cars will be another major challenge. Bob Passmore, Vice President of Personal Lines at the American Property and Casualty Insurance Association, said individual consumers cannot currently purchase insurance for fully self-driving cars, as they are not available yet. He said that providing insurance for enterprise self-driving car operators would be important in the case of self-driving Tesla, Inc. vehicles.At present, insurance can be obtained through commercial policies or through "remaining limit" policies in special circumstances.According to a review of regulations, many states have laws similar to Texas that allow registered autonomous vehicles to operate unrestricted in most cases. Other states have imposed more restrictions: Nevada requires autonomous car companies to obtain testing certificates and use employees as safety drivers. Kentucky and South Dakota require vehicles to be able to safely exit the road in case of issues. According to data from the industry organization, the Autonomous Vehicle Industry Association, 15 out of the 50 states in the US have no specific laws for autonomous vehicles. Three experts researching autonomous driving laws stated that lenient or non-existent regulations could increase legal risks, as autonomous vehicle companies cannot argue that they are meeting strict government safety standards. William Widen, a law professor at the University of Miami specializing in autonomous vehicle liability, stated that California's stricter regulations help protect approved companies, as it can provide "strong" evidence for defense if a company allowed to operate is sued for an accident. He said, "Lawyers always prefer regulatory approval because it provides evidence that the company did not act recklessly or negligently, and that they complied with all applicable laws."