As Tesla's (TSLA.US) electric car sales stabilize this year, CEO Musk is increasingly betting the company's future on the vision of self-driving taxi robotaxi. However, in realizing these visions, this electric car giant still faces significant technological and regulatory obstacles.

However, as one of President-elect Trump's biggest supporters, Musk may now have the influence to break through these regulatory barriers.

Tesla is currently facing a diverse landscape of state autonomous vehicle laws, Musk criticized these laws during the October 23 earnings call, stating that implementing regulations state by state was 'very painful'. He mentioned that if Trump wins and fulfills the commitment to put Musk in charge of the efficiency department, he would advocate for a federal approval process.

Musk said: 'If there was an efficiency department of the government, I would certainly try to help make this happen.'

On Tuesday, Trump followed through on his promise, appointing Musk and another ally to lead the non-governmental entity 'Department of Efficiency'. It is currently unclear how this organization will operate.

According to analysts, Musk's influence may go beyond efficiency. A person familiar with Musk and Trump's transition plans revealed that the billionaire donated at least $0.119 billion to a pro-Trump group during the campaign period, 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), responsible for regulating auto manufacturers, and may drive significant changes to autonomous driving rules at the national level.

However, based on interviews with nine regulatory and legal experts, as well as a review of autonomous vehicle laws in various US states, even if Musk obtains favorable regulation, Tesla will still face serious technical and legal obstacles in deploying self-driving cars, as well as the issue of providing insurance for them.

Tesla and Musk did not respond to requests for comment.

Currently, Tesla is still lagging behind competitors by several years in California, which is Tesla's largest market in the US and a major testing ground for the autonomous vehicle industry. According to a review of regulatory data in California, other companies have navigated through the regulatory "maze" in California and completed millions of miles of autonomous vehicle testing under state supervision.

Experts in autonomous vehicle regulation state that if Musk can successfully obtain federal regulations or laws that supersede state regulations, this may allow Tesla to bypass California's regulations.

State records show that since 2016, Tesla has only conducted 562 miles of testing, and since 2019, Tesla has not submitted a self-driving report to California regulators. In contrast, Waymo, a subsidiary of Google (GOOGL.US), has logged over 13 million miles of testing from 2014 to 2023, obtained seven different regulatory approvals, and approval to charge passengers for self-driving taxi services. Waymo is one of just three companies in California with a commercial operation permit for self-driving vehicles, and the only one authorized to operate the self-driving taxi fleet envisioned by Musk.

Waymo declined to comment on Tesla's regulatory strategy or its self-driving efforts.

Tesla currently holds the lowest level of permit in California, allowing testing under human driver supervision. Only six companies have been approved for autonomous testing. Data in California shows that prior to receiving approval for self-driving tests, each company had at least one driver conducting three years of testing, usually covering millions of miles. For example, Amazon's (AMZN.US) Zoox recorded over 1.6 million miles within three years. General Motors (GM.US) Cruise accumulated over 2.1 million miles over five years.

Cruise declined to comment. Zoox stated that it also obtained a separate autonomous "pilot" permit from California regulators, allowing the company to transport passengers without charging fares.

Carnegie Mellon University engineering professor and self-driving car safety expert Phil Koopman said: "Tesla still has a long way to go." He added that Tesla's current "Full Self-Driving" (FSD) system - actually requiring highly attentive human drivers - "is far from ready to become a driverless taxi."

Musk said that Tesla's self-driving capabilities will be ready next year, echoing promises made about a decade ago. Since this spring, he has increasingly bet Tesla's future on robotaxis.

Last month, Musk told investors at the Robotaxi event that Tesla will deploy its fully autonomous driving versions of the Model 3 and Model Y in Texas and California next year. He also introduced a two-seat "Cybercab" self-driving taxi, set to start production in 2026 with a price of about $25,000. However, Tesla's stock plummeted the next day due to Musk's demonstration lacking specific product details. Nevertheless, Tesla's stock has risen over 30% since the U.S. election, with a market cap surge of nearly $200 billion, as investors anticipate more friendly regulations on autonomous driving and artificial intelligence.

Billions of miles

For years, Tesla has been lobbying for electric vehicle subsidies and other benefits.

Two people familiar with the company's strategies said that over the years, in discussions with Congress and the NHTSA, the company has always supported federal standards for autonomous driving, but has not been able to implement them, partly due to political differences in Congress. In 2018, Tesla signed a letter supporting a bill in the Senate that would prioritize federal regulation of autonomous vehicles over some states, but the bill never received a full Senate vote.

In recent months, Musk has become an important member of Trump's inner circle.

Video footage released by sources and Republican staff shows Musk spending election night at Trump's private club, Mar-a-Lago, in Florida; he has frequented the luxury estate since the former president's victory on November 5th.

According to another informant, Musk has at least attended a meeting held at the Lake House Estate to discuss appointing a senior cabinet position - the Secretary of the Treasury.

A spokesperson for Trump did not respond to questions about autonomous driving regulations or Musk's influence, but stated, "Our federal bureaucracy will definitely benefit from his ideas and efficiency."

Three legal and regulatory experts told Reuters that during the Trump administration, NHTSA could design standards to accommodate autonomous vehicles, but a key issue is whether regulatory agencies can or will prevent states from enacting their own stricter rules.

A Republican-controlled Congress could also establish a national approval process to replace state laws. Traditionally, NHTSA is responsible for regulating vehicle design, while states primarily oversee drivers and traffic regulations, but once the vehicle itself becomes the driver, this division becomes unclear. Bryant Walker Smith, a law professor at the University of South Carolina focusing on autonomous driving, said that if NHTSA is "instructed to achieve a certain political outcome," it could interpret its powers more broadly.

Under Trump's leadership, NHTSA could pave the way for innovative designs, such as Cybercab, which Musk introduced at an event, stating that the vehicle will have no steering wheel or pedals.

National regulation of autonomous vehicles is more important for Tesla than for its competitors, as Tesla's business model is different. Musk's strategy includes selling millions of cars capable of self-driving anywhere in the world. While almost all other competitors, including Waymo, operate autonomous taxi fleets in limited, comprehensive map areas in specific cities.

Waymo and other companies manufacture more expensive autonomous taxis equipped with a range of redundant technologies and sensors, including radar and lidar. Tesla, on the other hand, relies entirely on "computer vision," trying to use cameras like human eyes and using artificial intelligence to convert images into driving decisions.

During the July earnings call, when asked how to overcome regulatory challenges, Musk stated that Tesla will have "billions of miles" to show that FSD is safer than human drivers, and regulatory agencies have a "moral obligation to approve it."

But so far, Tesla has shown almost nothing to regulators. The California Department of Motor Vehicles (DMV) stated that Tesla has not sought the necessary testing or deployment permits for driving self-driving cars on public roads. California's approval is crucial for any launch of Musk's so-called Tesla 'self-driving taxi network', which he has said could provide taxi services owned by Tesla and customers. According to industry data provider Experian Automotive, about 37% of Tesla cars driving on American roads are in California.

Waymo is now the only company approved in California to charge passengers riding in self-driving taxis. This is not an easy feat.

Waymo obtained its first safety driver testing permit in 2014. Four years later, in October 2018, after logging over 2 million miles of testing, it obtained a permit for self-driving tests. It took another three years and 3.7 million miles of testing to obtain approval from the California DMV to commercially operate self-driving cars in parts of San Francisco and San Mateo counties—required to be equipped with a human driver. State records show that Waymo received approval in August 2023 to charge passengers riding in self-driving robot taxis in San Francisco, after logging an additional 7.4 million miles. Waymo is currently operational in Los Angeles and Phoenix.

Cruise, a subsidiary of General Motors, also operates self-driving cars in San Francisco, but its license was revoked after an accident in October 2023, where a Cruise car dragged a pedestrian hit by another vehicle for 20 feet.

The less regulation, the greater the legal risks.

Facing different but still challenging obstacles in states with less regulation, like in Texas. Texas has minimal restrictions and explicitly prohibits city regulation of self-driving cars.

However, once Tesla claims that its cars are fully autonomous, it will face significant legal liability for accidents. So far, the auto manufacturer has blamed Tesla drivers for defending themselves in accidents lawsuits and regulatory investigations involving FSD and Autopilot. Tesla argues that it warns drivers to pay attention because these systems are not fully automatic.

University of South Carolina law professor Smith said, if Tesla is confident to deploy autonomous driving technology in states with lower regulatory oversight like Texas, "probably they will do so." However, "once you say humans don't need to pay attention, then when it comes to accident liability, you are pointing the finger at yourself."

Providing insurance for self-driving Teslas will be another significant challenge. Bob Passmore, Vice President of Personal Lines Policy at the American Property and Casualty Insurance Association, stated that individual consumers cannot currently purchase fully autonomous driving cars, so there is no insurance for autonomous driving cars. He mentioned that enterprise self-driving car operators currently obtain insurance through commercial policies or "surplus lines" policies in special circumstances.

Based on a review of regulations, many states have laws similar to Texas, allowing registered self-driving vehicles to operate largely unrestricted on the roads. Other states have imposed more restrictions: Nevada requires self-driving car companies to obtain a testing certificate and use employees as safety drivers. Kentucky and South Dakota require vehicles to be able to safely exit the road when encountering problems. According to data from the industry organization Autonomous Vehicle Industry Association, 15 out of the 50 states in the USA have no specific laws for self-driving cars.

Three experts studying autonomous driving laws expressed that lenient or non-existent regulations could increase legal risks because autonomous driving car companies cannot argue that they comply with strict government safety standards. William Widen, a law professor at the University of Miami specializing in research on autonomous driving car liability, stated that California's stricter regulations help protect approved companies. If a permitted company is sued due to an accident, this can provide "strong" evidence for their defense.

He mentioned, "Lawyers always prefer regulatory approval," as this provides evidence that the company did not act "recklessly or negligently, and that they complied with all applicable laws."