A lot depends on Musk and Tesla's “Robotaxi” event

new York
CNN
—

Elon Musk and Tesla promised a groundbreaking moment in the company's history on Thursday evening. It remains to be seen whether they will actually deliver.

For the past decade, the electric vehicle maker's CEO has vowed that true self-driving cars from Tesla were imminent. The latest promises will come as Tesla hosts an event at the Warner Bros. Studios lot in California to announce its plans for self-driving “robotaxis.”

“I think it's one of the most important events Tesla has ever held,” said Dan Ives, an analyst at Wedbush Securities and a Tesla bull. “I think in five to 10 years it will be viewed as the iPhone launch moment for Apple.”

Tesla's robotaxis would enable rides for passengers without a driver in the car. The fully self-driving vehicles would compete with ride-hailing services such as Uber and Lyft, and Tesla would also test programs with self-driving vehicles from Google's Waymo and General Motors' Cruise units.

Part of Thursday's program could include the introduction of a model that Tesla would build specifically for the robotaxi fleet, a “Cybercab,” as Musk called it.

But details are also expected about the company's ride-sharing service, which will use both Tesla-owned vehicles and cars owned by Tesla customers who may want to rent their cars for rides when they are not in use, similar to an Airbnb for their vehicles. Tesla would take a cut of the revenue while the rest of the money would go to the owner of the vehicle.

But Tesla has promised for the past five years that such a program is within reach. And even if the technology is as advanced as Musk likes to claim, it could be difficult to get regulatory approval to operate. Accidents involving driverless vehicles could cause regulators to halt operations even after they are approved. It is a risk that services that use human drivers are not exposed to.

GM's Cruise unit had its permits to operate self-driving vehicles in California revoked by the state's Department of Motor Vehicles after a pedestrian who had already been hit by a driver-driven car was dragged 20 feet under a Cruise vehicle, causing an accident resulted in serious injuries.

Musk and his supporters insist that this will change the fundamental economics of how people get from point A to point B, which in turn will result in Tesla stock receiving a valuation that represents the market value of each would eclipse the current company. Musk's promises about autonomous cars have boosted Tesla shares for years.

They hypothesize that Tesla could not only make more money selling rides than actually selling cars, but could also drive demand from buyers who cover their purchase prices by renting out their cars for rides.

Tesla and Musk have made promises many times about the capabilities of autonomous vehicles and when true self-driving will be available. So far, Tesla has not kept these promises. And, Beyond the question of technology, significant regulatory hurdles must be overcome.

Tesla has long offered so-called “Full Self-Driving” (FSD) as an option on its cars, which are currently priced at $8,000. Despite the name, Tesla says that even in FSD mode, drivers must still be in the driver's seat and ready to take control of the vehicle.

In a call with investors in July, Musk said he expected to have “unsupervised (driving)” possibly by the end of this year, adding: “I would be shocked if we didn't get it done next year.” But he also admitted: “Obviously my forecasts on this in the past were too optimistic.”

In fact, if you listen to Musk's previous statements, Tesla is many years away from truly fully autonomous driving.

“I am the boy who cried FSD. But I think we will be better than humans by the end of this year,” he said in a call with investors in July 2023, adding: “I have been wrong in the past. This time I may be wrong.”

While Tesla and Musk have insisted that FSD has achieved the goal of being safer than human drivers, outsiders who have tested the service have found that the vehicles are prone to accidents unless drivers take control frequently. An independent testing service, AMCI Testing, found that on average drivers had to take control every 13 miles driven.

“There would be three accidents every hour. This is a thousand times worse than competing technology,” said Gordon Johnson, an analyst who has long been a harsh critic of Tesla and Musk. He predicts Thursday's launch of Robotaxi will be “a huge disappointment for investors.”

Even some of those who are optimistic that Tesla can deliver on its promises believe service is three to five years away at best.

“We expect shutdowns in 3% of the kilometers driven. “Although 97% of the way there seems close, it's not even close,” says Gene Munster, managing partner at Deepwater Asset Management, of the frequency with which a human driver will need to take control. “It has to be well above 99%. And going from 95 or 97% to 99% is really hard. And then there's the question of how many nines regulators want to see. Is it 99.9%, 99.999%?”

“I think it will take two years to get the technology right,” Munster said. “And another two to three years to obtain the necessary regulatory approval.”

While Munster is optimistic about Tesla's ability to succeed in the future, he suspects the event could leave investors unimpressed.

“They’ve been talking about this for years,” he said. “The biggest question is timing. If it lasts longer than three months, investors will view it with caution.”

Even a bull like Ives said it was critical that Musk break through prevailing skepticism given his past promises.

“This is a fork in the road for Musk and Tesla,” he said. “Either you leave the event with a mind-blowing moment, or you leave the event with a shrug.”