Tesla's Robotaxi service launch boosts bullish confidence, but the path to scaling may be fraught with difficulties

According to the Zhitong Finance APP, on June 22 local time, Tesla (TSLA.US) officially launched its autonomous taxi Robotaxi service in Austin, Texas, USA, beginning to pick up and drop off the first batch of passengers. Tesla has deployed a fleet of approximately 10 to 20 vehicles for this pilot service (some media speculate that the actual operating vehicles number 35), all modified based on the Model Y, equipped with Tesla's self-developed visual perception system and FSD (Full Self-Driving) software.

It is worth mentioning that the newly launched Tesla Robotaxi service still has many limitations. Currently, it is only available to "early bird users" who have been officially invited by Tesla, consisting of about 20-30 Tesla fans or investors and influencers. Additionally, although there is no driver in the main seat, there is a safety officer in the passenger seat responsible for executing manual emergency braking in case of emergencies. The service's operating hours are also limited to 6 AM to midnight, and it will cease operations in inclement weather. Tesla also reminds users in its disclaimer not to use Robotaxi in emergencies. Finally, regarding the service area, although it is being piloted in Austin, it operates only in a small portion of the southern area of Austin, approximately 77 square kilometers, restricted by geographical fencing.

The launch of the Tesla Robotaxi pilot service undoubtedly boosts investor confidence, and Tesla's stock price rose by 8.23% following this positive news.

Long Journey Ahead

The launch of the Robotaxi pilot service is not the end for Tesla, but rather the beginning of a long journey. Next, Tesla faces a daunting task—fulfilling CEO Elon Musk's ambitious goal of refining its FSD software and uploading it to millions of Tesla vehicles within about a year.

Dozens of industry analysts and autonomous driving technology experts interviewed expressed that such rapid expansion will be extremely challenging. These observers have varying views on Tesla's prospects but unanimously warn that the deployment of Robotaxi should not be assumed to happen at lightning speed.

For years, Musk has stated that Tesla will soon operate its own autonomous ride-hailing service and turn all new and old Tesla vehicles into Robotaxis that can earn money for customers. However, Bryant Walker Smith, a law professor at the University of South Carolina specializing in autonomous driving regulation, pointed out that this goal is "several orders of magnitude more difficult" than the tests in Austin.

Some analysts noted that Tesla's "speed strategy" may actually backfire and even slow down the entire autonomous driving industry's progress, especially if it undermines public trust. Tesla has previously faced legal and regulatory challenges due to its FSD driver-assistance system, which is not truly autonomous driving. In a recent federal safety investigation, investigators are examining the role of FSD in several accidents—including some fatal ones—that occurred in adverse weather conditions, affecting FSD's reliance on cameras Some experts point out that Tesla may surpass competitors, including Waymo, a subsidiary of Alphabet (GOOGL.US), due to certain advantages. Tesla has large-scale manufacturing capabilities and was the first to achieve remote software updates, which can be used for upgrades to autonomous driving features. Additionally, unlike Waymo and most competitors that rely on sensors such as radar and lidar, Tesla relies entirely on cameras and artificial intelligence, which means Tesla's Robotaxi has a cost advantage.

Since Tesla relies on artificial intelligence, its challenge will be training machine learning systems to enable Robotaxi to handle complex traffic "edge cases." Philip Koopman, a professor of computer engineering at Carnegie Mellon University and an expert in autonomous driving, points out that this could take years. He stated, "Look at how long it took Waymo; there’s no reason to believe Tesla will be faster."

It is reported that Waymo's autonomous driving project began in 2009, but it wasn't until 2015 that its first prototype vehicle drove on public streets for the first time—also in Austin. For many years afterward, Waymo gradually built a fleet of 1,500 Robotaxis in select cities.

Former Waymo CEO John Krafcik believes that the many precautions Tesla has taken during testing in Austin indicate that it is not confident in the safety of its technology for large-scale application. He stated, "They really shouldn’t be confident. The current system is not safe enough, and it is far from the robust approach and clearly documented safety that Waymo has demonstrated."

However, some analysts believe that Tesla may expand faster, partly because Waymo has helped clear some regulatory and technical hurdles. Paul Miller, an analyst at market research firm Forrester, stated, "Waymo and other pioneers have driven regulatory changes and have made passengers, pedestrians, and other road users aware of autonomous vehicles."

Barclays: The Key Question is How to Achieve Scale

After Tesla launched its Robotaxi pilot service, Barclays pointed out in a recently released report that the service has been overall smooth, with no major issues, and in their view, it basically meets expectations. Barclays added that for Tesla bulls, this event marks the beginning of a new era for Tesla and the start of an exciting growth path. They believe that the Robotaxi technology is operating well, the expansion path is clear, and that Tesla's ability to generate revenue through Robotaxi services is a key milestone.

However, Barclays emphasized that the more important question is the expansion path, which will be long, and investors should not be overly optimistic. Barclays stated that while the launch of the Robotaxi service is symbolic, the more pressing question is how quickly Tesla can scale up. In short, how many Robotaxis can Tesla operate months from now? Does it have the capacity to compete with Waymo and Uber (UBER.US) in terms of service scale? According to reports, Tesla plans to gradually increase its fleet size, aiming to have 1,000 Robotaxis actively operating within a few months, while also expanding its geographic range beyond Austin. Musk recently mentioned that target cities for expansion include San Francisco, Los Angeles, and San Antonio.

Barclays expects that the future focus will be on the speed of expansion. The core logic of Tesla bulls is that, thanks to lower production costs and a geofencing technology that does not rely on high-precision maps, Robotaxis can scale quickly. Barclays anticipates that Tesla will regularly update its expansion progress and milestones, and will need to further clarify its plans to address edge cases, localization parameters, infrastructure development, and regulatory challenges.

Barclays added that the Robotaxi service must perform well in its initial stages to reassure people about its autonomous driving opportunities. Given that Robotaxis will attract significant media attention, it is expected that related performance data will be relatively transparent, although the exact amount of remote control usage may remain unknown. It is important to note that Tesla is the only major player that achieves autonomous driving solely using cameras, while competitors mostly use radar and/or lidar in addition to cameras.

Furthermore, obtaining regulatory approval in the new cities Tesla plans to expand into will be a hurdle. Tesla also needs federal approval for its Cybercab, which is tailored for Robotaxi use (expected to go into mass production next year) — this model has no steering wheel or pedals. Although there has been recent progress in this area, the Trump administration is taking steps to make it easier to deploy vehicles without driving controls.

Finally, Barclays believes that catching up to Waymo is no easy task. Waymo has completed over 50 million miles of autonomous driving and over 10 million paid rides. Waymo's operational area in Austin is currently broader than Tesla's initial range. A comparison between the two is inevitable, and the speed of expansion is expected to become the most critical metric for evaluating both companies.

The report shows that Barclays has a "hold" rating on Tesla's stock, with a target price of $275, which is about 21% lower than Tesla's closing price on Monday