Tesla May Be Behind in Driverless Vehicles, but Here's a Silver Lining

Key Points

• Tesla's robotaxi service finally hit the big stage, at least in some form.

• Tesla remains years behind Waymo in terms of needing a driver to supervise the vehicle.

• Once Tesla is fully autonomous, it has a couple of advantages it can seize.

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There are a whirlwind of things happening around Tesla (NASDAQ: TSLA) right now, both good and bad. On the one hand, the company is dealing with a talent exodus with multiple executives leaving, consumer backlash at CEO Elon Musk's political antics, declining global sales, and an aging vehicle lineup, just to name a few.

On the other hand, the company believes it can be the most valuable company in the world as it transitions from vehicle production to a company based on artificial intelligence (AI), robotics, and driverless vehicles. The question remains: Where will Tesla's stock trade during all of this madness?

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Falling behind?

One of the biggest developments for Tesla investors over the summer happened in Austin, Texas, where the company launched its robotaxi pilot. However, three months into its robotaxi pilot with a small number of Model Ys operating, it still requires a safety driver just in case, and it still only operates with invite-only passengers.

Image source: Tesla.

Sure, it was a step forward after the company had long promised such a service, but Tesla is still behind its primary rival, Waymo, which is moving into new cities and doesn't require a safety driver to supervise its driverless vehicle.

While the slower and smaller initial test may have made investors cautious, Musk remains ambitious. During Tesla's July 23 earnings call, he noted that the autonomous ride-hailing service would reach across most of the country and "probably" address half the U.S. population by the end of 2025 -- lofty targets, to be sure.

No small matter

Make no mistake, this is a huge development for investors and the stakes are high. Tesla's slow rollout has some onlookers pumping the brakes.

"It's an acknowledgment that their software isn't as mature as they thought it was and they're going to need more time with a safety driver," said Carnegie Mellon professor Philip Koopman, an expert in autonomous vehicle safety, according to Automotive News. "That's OK for everyone except the people who invested thinking there'd be a million of these cars on the road by the end of the year," he said.

Investors looking for a silver lining might have to squint to see it more clearly, but it's there. One reason Tesla remains a serious threat to its rivals such as Waymo is because once the autonomous technology and robotaxi become fully autonomous, the automaker can easily produce tons of vehicles from its factories in California and Texas.

Long term, Tesla's gigafactory production is an advantage. But the company also has a cost advantage over its rivals as it only uses cameras for its self-driving technology, rather than more expensive sensors such as radar and lidar.

Investors also have to keep in mind Tesla may be behind at the moment, but at the same time could make progress faster than its competitors. In fact, if Tesla can change to no safety driver in the next 12 months, that'll be faster than any other robotaxi company that's accomplished the feat. For context, Waymo tested for years with safety drivers before going fully autonomous, but that was back in 2020.

What it all means

Tesla's progress with autonomous vehicles has been slower than desired, but investors should focus on if the company can do it without sensors, and do it effectively. At this point doing it right is much more valuable than doing it faster -- that battle may already be over. That said, Tesla has seemingly gone all-in on its future transition from only producing vehicles to becoming an AI, robotics, and robotaxi service company, which could be lucrative if it's all achieved.

Until then, investors are going to need plenty of patience, especially considering the third quarter is likely to be strong -- remember the end of the $7,500 tax credit pulled demand into the third quarter. That should be followed by several rather bumpy quarters for not only Tesla but the broader electric vehicle industry.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.