Tesla (TSLA) investors have good reason to watch the bromance between billionaire CEO Elon Musk and President-elect Donald Trump very closely.
If the love continues, it could eventually prove quite lucrative for the electric vehicle maker.
Trump’s transition team is looking for policymakers for the Department of Transportation and one of its agencies in the National Highway Traffic Safety Administration (NHTSA) to spearhead self-driving regulation, likely easing the rules to enable faster development, according to a report by Bloomberg.
However, experts interviewed by Yahoo Finance say changing the rules of the road may be a lot more complicated. Currently, self-driving is regulated on a state-by-state basis, and Tesla likely does not have the technology nailed down for total autonomous driving.
“I think it’s nice to have federal government support technology versus hindering it, which is what they’re doing now,” Tesla investor Ross Gerber, who co-founded investment firm Gerber Kawasaki, told Yahoo Finance. “But where Tesla fits in all of this has nothing to do with Donald Trump and federal regulation. A bird has to fly for it to be a bird.”
Tesla’s FSD — more formally known as full self-driving — is an advanced driver assistance system that’s currently available in its electric vehicles.
The technology was recently showcased at Tesla’s October robotaxi event in Los Angeles, where a test car pitched as a taxi drove attendees without anyone in the front seat. The car didn’t have a steering wheel.
At the moment, the technology still requires a human at the wheel when on the road. Gerber believes that 100 out of 100 Tesla owners would not get in the back seat and turn on full self-driving today.
A Tesla Cybercab is displayed at the Los Angeles Auto Show, in Los Angeles, California, U.S., November 21, 2024. REUTERS/Daniel Cole ·REUTERS / Reuters
In October, the NHTSA opened an investigation into 2.4 million Tesla cars with FSD after several crashes.
On Tesla’s third quarter earnings call in October, Musk told investors that the current regulatory framework is “incredibly painful” and promised to advocate for a nationwide approval process of full self-driving vehicles. A federal framework put forth by the Trump administration would be a huge benefit for Tesla — which is seen as behind Google’s (GOOG) Waymo and General Motors’ (GM) Cruise in robotaxi testing.
“I see a robotaxi right now: It’s called Waymo,” Gerber said. “By the time Tesla comes out with a robotaxi, there will be probably three or four other services as well.”
The potential revenue stream for Tesla by fully unlocking the power of FSD in the US is enticing. The company charges $8,000 up front or a $99 per month subscription to use FSD and currently delivers around 1.8 million vehicles a year.
In its third quarter earnings report, Tesla disclosed that FSD contributed $326 million to its revenue. If Musk is able to get Trump appointees to loosen up regulations on the technology, he could get more Tesla buyers to pay for FSD while also forging ahead with a robotaxi fleet.
Musk has said he plans to launch fully autonomous driving in California and Texas with Model 3 and Model Y test vehicles in 2025.
Investors are sniffing out the money-making opportunity.
Tesla’s stock is up 43% this year, partially boosted by the promise of robotaxis after the company missed EV delivery estimates earlier in the year. Since Trump won the presidency on Nov. 5, the stock has risen about 40%, adding roughly $350 billion in market value.
As is usually the case with Musk, whether he can meet his ambitious 2025 FSD timeline is in question.
“There’s a real risk if [federal regulators] move fast in this area,” Cary Coglianese, a law professor at the University of Pennsylvania, said. “If they want to really take this seriously and look at all the evidence, do all the engineering analysis, and have sufficient input from all of the relevant interests … then this could take years.”
Currently, about half of US states have statutes related to regulating autonomous vehicles. However, state laws vary, and even the strongest state laws (such as California’s) do not require a set level of safety for the technology.
States and localities usually regulate their own roads, and the federal government only has authority over interstate commerce, per Coglianese.
“It’s unlikely that the new administration would seek to mandate these [self-driving] standards directly on states,” Coglianese said. Instead, the federal government may attach accepting self-driving standards to getting highway funds or other funding.
The Federal Motor Vehicle Safety Standards require vehicles to have steering wheels and pedals. A company can apply for an exemption from having basic human controls. Each year the government offers 2,500 exemptions per company — that cap prevents Tesla (or any other company) from deploying its robotaxis at scale.
Raising the exemption has been proposed for years — and something the Trump administration will likely attempt as well.
Using the federal government to preempt state-level regulation is something the autonomous driving industry has been trying to do for years, so far without success, said Phil Koopman, a professor at Carnegie Mellon University who has been working on self-driving car safety for more than 25 years.
“I’m afraid what will happen is the feds will say they’re regulating it, they’ll preempt the states, and then they’ll slow-roll the regulation for multiple years,” Koopman said. “And in those multiple years, there will be no rules. That’s the worst-case scenario.”
Wall Street analysts understandably have a mixed view of FSD’s future.
Morgan Stanley’s Adam Jonas wrote in a new note that Tesla’s recent stock surge “is the latest example of the types of catalysts that can drive volatility.”
He added, “Tesla still faces significant hurdles to overcome in terms of technology, testing, and permitting required for commercialization. We also expect that US states and metro areas will continue to have the greatest say on final deployment.”
The potential reduction in the $7,500 EV tax credit may be factored into the current stock price. “However, the company’s leadership in embodied AI and autonomous technology (and potential policy accelerants) may not be, in our view,” Jonas wrote.
Deutsche Bank analysts wrote in a recent note that setting national standards for FSD would fast-track the deployment. They estimate that Tesla’s robotaxi services will begin rollout as early as the new year.
“Unlike Waymo, Tesla requires essentially no ‘prep work’ to launch robotaxi operations in a locale considering using FSD does not require HD mapping or incremental code to account for special corner cases,” the analysts wrote.
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