What Is Tesla Motors Inc.'s Role in the World of Self-Driving Cars?

Tesla Motors raised the bar and now leads the charge in the electric car market. Could it do the same for automated driving?

Jul 13, 2014 at 5:15PM

I recently took the opportunity to delve back into the self-driving car discussion, as it is one that I find extremely interesting and enjoy covering. As it turns out -- and perhaps to nobody's surprise -- the company that revolutionized the electric car world may be the next to revolutionize the autonomous driving world. Yes, we're talking about Tesla Motors (NASDAQ:TSLA)

Autonomous driving has become a "when, not if" technology, even if the concept still seems far-fetched. Details are sparse, but within the next decade, we could have a drastically different landscape during our daily commutes. A fully autonomous vehicle won't come right out of the gate; that's "maybe more than a decade away," as Dan Neil wrote in The Wall Street Journal.  

If you want to get a little more insight on the topic, just read my piece, "Self-Driving Cars Could Come Sooner Than You Think."  

What forms of automated driving already exist?
Despite the public's hesitancy to give up control of their car, the implementation of computers and software maneuvering our cars has already begun. 

For instance, today we have self-parallel parking. The technology was first introduced in 2004 by Lexus, a Toyota Motors (NYSE:TM) brand.

We also have sensors equipped on cars that allow for automatic breaking and adaptive cruise control. Even the little things are an acceptance into software-assisted driving, such as reverse sensors, blind-spot sensors on the side mirrors and Ford's (NYSE:F) new "Trailer Backup Assist," which this short YouTube video below describes in much better detail than I ever could:

Source: YouTube.

So, where does Tesla stand in all of this? 
I have long desired to see one key driving concept for autonomous driving: the highway. 

Tesla CEO Elon Musk recently made autonomous vehicle lovers drool during the company's annual shareholder meeting. Below is part two of a two-part YouTube video from the meeting. Musk's comments come during the 15 minute, 35 second mark:

Source: YouTube.

(Click here for the full shareholder meeting.)

Musk said, "I think we're making some really good progress on the autopilot side. And I'm confident that in less than a year, you'll be able to go from highway on-ramp to highway exit without touching any controls." 

So, who can bust through in the autonomous driving world?
To some degree, you might assume that the bigger the company, the more likely it is to succeed. That's because these companies have the most money and presumably the best resources. Although a bigger budget certainly helps, it takes more than money to rise to the top. 

Take a look at the Research & Development (R&D) spending from some of the players in the auto industry and in the autonomous driving discussion:  

Company R&D Spend in 2013 R&D Spend in 2012 Estimated Target Date
Google $7.91 billion $6.59 billion 2016-2018
General Motors $7.2 billion $7.4 billion 2020
Ford $6.4 billion $5.5 billion 2025
Toyota Motors $8.97 billion $7.96 billion 2016
Tesla  $231.98 million  $273.98 million 2015

Source: Financial filings from each company. All target dates are very rough estimates and may not be fully accurate given future restrictions in technology and current regulations in the U.S. Also, each automakers' definition of "autonomous driving" does vary. 

As you can see, Tesla has a significantly lower R&D budget than these other companies, which are also significantly larger than Tesla. However, I honestly don't think that matters to a certain degree. Other car companies have been working for years to create an electric vehicle and have had very little success. Under Musk's leadership, Tesla has emerged as the top player in the electric vehicle space.

Model S

Source: Tesla Motors.

Tesla's R&D is up roughly 150% from 2010, which shows that the company made game-changing products with a significantly lower budget than its peers. Autonomous driving may be no different. Although Google is quickly emerging as the possible leader in the technology, it is targeting vehicles intended for local roads, with maximum speeds of 25 mph. Because of this fragmentation in the space, I believe there is room for several dominant players, and Tesla seems prime to be one of them. 

It also helps that Tesla is led by Musk, the co-founder and former CEO of PayPal and founder, CEO and chief designer of SpaceX, which "designs, manufactures and launches advanced rockets and spacecraft."

Tesla, led by by Musk, makes it so that an R&D budget doesn't need to be in the billions in order to effectively create game-changing technology, as Musk has done so in digital payments, rocketry, and now electric cars. There's no reason autonomous driving can't be the next great conquer from Musk & Company. 

Final thoughts
Seemingly every carmaker -- from Nissan, Audi, and Mercedes-Benz to General Motors (NYSE:GM) and, of course, Google (NASDAQ:GOOGL) -- appears to be working on self-driving cars. It is the way of the future, and it will come sooner than most of us are prepared for. 

Tesla's partnership with Mobileye, a privately owned company that focuses on "vision-based Advanced Driver Assistance Systems (ADAS) providing warnings for collision prevention and mitigation," may just be the piece to launch Tesla into the stratosphere. 

While Mobileye has tested several different vehicles with different devices, it is now reportedly working with Tesla specifically in regards to automated driving. The company is considered a leader in vehicle collision prevention and is a valuable partner for Tesla to team up with in its goal to create a hands-free highway commute. 

Buying a luxury car for around $75,000 that has the highest rating ever (as by Consumer Reports' standards), that happens to requires zero gasoline is impressive enough. Add in the fact that you wouldn't need to touch the steering wheel when making highway drives, and Telsa would certainly appear destined to lead the charge for the new standard in automobile manufacturing.

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Bret Kenwell owns shares of Ford. The Motley Fool recommends Ford, General Motors, Google (A shares), and Tesla Motors. The Motley Fool owns shares of Ford, Google (A shares), and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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