For years, Tesla Inc. (TSLA, Financial) CEO Elon Musk has promised the imminent advent of fully autonomous vehicles, only to fail repeatedly to deliver the goods on the promosed timelines.
In January 2017, he claimed Tesla vehicles would "definitely" have full self-driving functionality within six months. In April 2019, he assured analysts and investors that Tesla would have 1 million robotaxis on the road in 2020. As of January 2021, there are zero.
Tesla is facing the same problem as other developers of autonomous driving systems. Full autonomy, known in the industry as Level 5, is a harder problem to solve than was once believed. Most industry leaders now believe it will take a decade or more to achieve.
Musk's litany of blown autonomy deadlines has thus far failed to dampen the spirits of Tesla owners or investors. That may change as time marches on and the company is still unable to meet its CEO's unrealistic and overly optimistic promises.
A tougher nut to crack
On Jan. 11, Michael Bolle, chief digital officer of Robert Bosch GmbH, became the latest autonomy guru to throw cold water on the market's overheated autonomy ambitions:
"In L4 and L5, the industry has realized that the complexity of the automation task, for example for a robotaxi in a highly dense urban environment, is significantly more complex than we imagined even 5 years ago."
According to Bolle, the complexity of the task has forced Bosche to adjust its once ambitious autonomy development timeline. Bosch now expects Level 5 to be achieved in the second half of this decade, at the earliest.
Bosch is far from alone in rethinking its autonomy timeline. Almost every company currently working on the problem has admitted that full autonomy will take longer than they had anticipated. Once thought to be achievable within a few short years, most industry insiders now believe it will take at least a decade to reach Level 5 autonomy. That near universal expectation casts considerable doubt on the prospect of robotaxis, Tesla or otherwise, hitting the road anytime soon.
Tesla stands alone
Based on his most recent comments, Musk's confidence in Tesla's autonomy program has not been shaken by the growing doubts of other industry insiders. In July, he once again pledged that Tesla would deliver "complete autonomy" with the "basic functionality for level five" by the end of the year. Only at the last minute in December did he revise the timeline once more, this time promising Level 5 in 2021:
"I am extremely confident of achieving full autonomy and releasing it to the Tesla customer base next year. Now, there's a certain period of time regulatory approval will take, but I think if you accumulate billions of kilometers of autonomous driving, then it's difficult to argue…I think at least some jurisdictions will allow Full Self-Driving next year."
In stark contrast to virtually every other company developing autonomous driving technology, Tesla has continued to promise customers and investors alike that it is on the cusp of Level 5. The company has been selling "Full Self Driving" as a vehicle add-on for years, netting it hundreds of millions of dollars in recent quarters.
Musk's claims have set Tesla apart from the rest of the autonomous driving community. As time has worn on and the challenges have multiplied, Tesla has become increasingly isolated within the industry.
Fantasy collides with reality
Based solely on its lengthy track record of broken autonomy promises, one might be justified in maintaining a healthy amount of skepticism toward Tesla's latest timeline. Things look even worse for Tesla if one adds the growing divergence between Tesla's claims and those of the rest of the industry into the mix. But that is not the worst of it either.
While Tesla's ambitious timelines, bolstered by Musk's relentless public optimism, have made the company the face of autonomy in the eyes of much of the public, its actual position within the autonomous driving race is far more modest. In fact, as I discussed nearly two years ago, Tesla has been trailing other developers for some time. According to most of the experts tracking the industry, this situation has not changed much since. Navigant Research, for example, placed Tesla dead last in its latest comprehensive survey of the leading autonomy development programs.
Tesla's problem is that, while it has done an awful lot to intensify the hype around autonomy, it has done precious little of the hard, boring work that is necessary to make genuine Level 5 autonomy a reality. Jalopnik's Jason Torchinsky articulated this very point on Jan. 12:
"Yes, fantastic progress has been made, but there is still so much to do, and it's no longer the fun stuff. The fun stuff is what Tesla is doing — actually making a car capable of driving itself under certain circumstances — but they've done next to nothing on how that car will handle situations where a sensor or camera fails, or it needs to safely pull off a road."
Beware the trough of disillusionment
When new innovations and technologies gain public attention, they tend to follow a similar pattern. Gartner, a respected research and advisory firm, coined the term "hype cycle" to describe this phenomenon.
The hype cycle begins with an "innovation trigger" that sparks interest and excitement. As enthusiasm continues to grow, expectations gradually inflate, ultimately leading to a crescendo of optimism. Then, as the innovation fails to deliver as expected, enthusiasm turns to disillusionment. According to Gartner, this "trough of disillusionment" is the natural consequence of inflated expectations:
"Interest wanes as experiments and implementations fail to deliver. Producers of the technology shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters."
Autonomous driving technology has clearly been swept up in a hype cycle of its own, one that Tesla has helped to intensify. Indeed, thanks in no small part to Musk's continued insistence that Level 5 is just months – not years or decades – away, expectations have been inflated radically out of proportion to the actual state of the technology.
Expectations are now rising among industry insiders and observers alike that autonomy's descent into the trough of disillusionment is imminent. That could quickly become a serious problem for Tesla, especially if it keeps blowing through deadlines.
Driving into danger
Tesla's market capitalization now dwarfs the combined value of all non-Chinese automakers, despite its holding less than 1% of global market share. Among the key drivers of this obvious incongruence appears to be the expectation that Tesla will soon deliver true Level 5 autonomy. Indeed, it is a core component of most bullish valuation models.
However, while these divergent autonomy claims have helped to fuel the meteoric rise in Tesla's stock price, they have also left it especially vulnerable to a hype cycle shift. In my assessment, Tesla's hype-driven valuation will face mounting pressure as inflated expectations give way to disillusionment.
Disclosure: Author is short Tesla.
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