This week, Elon Musk announced on social media that Tesla's much-anticipated robotaxi service is set to launch on June 22 in Austin, Texas. This development is a significant milestone for the company, as Musk is betting the future of Tesla on the success of autonomous vehicles (AV) and the robotaxi service. The introduction of this service could provide a much-needed revenue boost for Tesla, especially as the company's sales and profits have recently taken a downturn.
Musk envisions a world where self-driving cars transport paying passengers without the need for a human driver. However, there are substantial concerns regarding the safety and commercial viability of this business model. Traditional automakers, such as General Motors, have already scrapped their plans for similar robotaxi services after investing billions of dollars, citing the significant resources required and the intensifying competition in the robotaxi market. Ford has entirely abandoned its autonomous vehicle initiatives.
Despite these setbacks faced by other companies, experts suggest that Tesla's most significant competition may come not from other robotaxi services but from human drivers working for ride-sharing platforms like Uber and Lyft. According to Bryant Walker Smith, an expert in autonomous vehicles from Stanford Law School, "The challenge is less technological and more economic." He explains that companies employing engineers and mechanics to support their AV services will struggle to compete with Uber drivers, who often work for minimal wages and maintain older vehicles.
Musk remains optimistic about Tesla's position in the market, claiming, "I don’t see anyone being able to compete with Tesla at present." During the earnings call in April, he expressed confidence that Tesla could achieve a market share of "99% or something ridiculous" in the robotaxi sector. However, Musk's optimistic timeline of June 22 for the launch is still tentative, and Tesla faces stiff competition from established players.
Currently, there are operational robotaxis on the roads, and none of them are Tesla vehicles. Notably, Waymo, a subsidiary of Google, already offers around 250,000 paid rides per week across four U.S. cities, including San Francisco, Los Angeles, Phoenix, and Austin. Meanwhile, Chinese companies are also advancing in the robotaxi space.
While Waymo’s parent company, Alphabet, does not publicly share the financial specifics of its AV division, it reported a loss of $4.1 billion last year, despite investing $5.6 billion into the project. This financial strain is relatively minor for Alphabet, which posted a net income of $100 billion. In comparison, Tesla reported a net income of $7 billion in 2022, a significant 53% drop from the previous year.
Waymo is rapidly expanding its service, with ridership increasing by over 50% in the past six months. Their fleet of 1,500 vehicles has surpassed 10 million paid rides, doubling the total from the end of the previous year. Additionally, Uber is collaborating with Waymo in Austin and plans to extend this partnership to Atlanta next year. Uber CEO Dara Khosrowshahi recently acknowledged the role of robotaxis in the future of the company while emphasizing their reliance on human drivers in the near term.
Despite the technological advancements, safety concerns linger regarding the widespread adoption of robotaxis. Historical precedents suggest that public apprehension can be a significant barrier. After the advent of automated elevators, many building owners continued to employ human operators due to safety concerns. Smith notes that while people may initially feel anxious about riding in a robotaxi, they often relax after a short period, indicating a potential shift in public perception.
Currently, Tesla's self-driving technology, known as Full Self-Driving (FSD), relies solely on cameras rather than more sophisticated sensors like lidar. Musk has openly criticized lidar, calling it unnecessary and overly expensive. However, many experts argue that lidar offers enhanced safety through better obstacle detection. The National Highway Traffic Safety Administration (NHTSA) has launched multiple investigations into the safety of Tesla’s FSD, particularly following a fatal accident involving a pedestrian.
With sales and profits declining, Tesla is at a critical juncture. The company recorded its first drop in annual sales last year and experienced its most significant quarterly sales decline to date, partly due to backlash against Musk's political activities. Following a peak in stock prices fueled by expectations of favorable policies from Donald Trump, Tesla's shares have since plummeted by 30%.
Musk and his supporters remain convinced that Tesla's autonomous vehicle capabilities and upcoming robotaxi service will lead to a significant increase in asset value. In January, Musk stated, "I think this will be the largest asset value increase in human history." Tesla did not respond to inquiries for this article.
Despite Musk's repeated assertions that the robotaxi service would revolutionize transportation, the timeline has continually shifted since he first claimed it would launch within a year back in 2019. GLJ Research analyst Gordon Johnson predicts that the upcoming launch will be more of a "proof of concept exercise" rather than a full-fledged commercial rollout. Smith remains skeptical, suggesting that Musk’s history of unmet promises should lead to caution in how his statements are received.
As the launch date approaches, it remains to be seen whether Tesla will finally deliver on its long-promised robotaxi service, or if history will repeat itself with more delays and disappointments.
