While Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL)Waymo is currently the leader in driverless-vehicle miles driven, Tesla (NASDAQ:TSLA) isn't far behind. In fact, one could argue that with Tesla recently having traded at over $60 billion -– higher than any other U.S. automaker -- it must become a leader in autonomous driving, or else. In fact, Morgan Stanley analyst Adam Jonas believes Tesla's "platform" potential is essential to the bull case in which the company reaches an Apple-like valuation:
Could a highly successful Model 3 and its progeny achieve this? In our view, no. Could an electric, autonomous semi truck achieve this? We don't think so. Solar roofs... or Tesla Powerwalls? Not big enough. In our view, there's only one market big enough to propel the stock's value to the levels of [CEO] Elon Musk's aspirations: that of miles, data and content. When does Tesla make the leap to mobility?
Therefore, in order to even think about investing in Tesla at these levels, you need to consider where it stands in the race to a fully autonomous future. Here's what you need to know.
Unlike Waymo, which is aiming straight for producing Level 4-5 autonomous cars without consideration for Level 3 features used in current vehicles, Tesla has had Level 2-3 features in its cars since 2014. Autonomous features are present in all Tesla models -- the Model S, Model X, and even the upcoming mass-market Model 3, slated to begin production this month. These capabilities include auto-steering, traffic-aware cruise control (cruise control while changing lanes), automated parking and "Summon" functionality, and driver warning systems.
But while Tesla includes all of this functionality in today's cars, it's also moving extremely quickly toward Level 4-5 fully autonomous functionality. In fact, all Teslas made with second-generation Autopilot hardware, which came out in October 2016, are capable of full Level 4 autonomy, according to management.
That means that once the company develops and is permitted to upload the necessary software to users' vehicles (two big "if"s), these newer Teslas could theoretically become fully autonomous. In fact, in a recent TED talk, Musk indicated that Level 4-5 autonomous vehicles are only two to three years away, not a decade or more, as others have hypothesized.
Tesla's current technology path actually differs quite a bit from Waymo's. While Waymo scientists believe that lidar is the key technology for fully autonomous vehicles, Tesla has actually foregone lidar, believing that its 360-degree camera, radar, and ultrasonic sensors can replicate lidar functionality without its prohibitive costs.
And while Tesla had previously relied on third-party image-processing technology from Israeli company Mobileye (NYSE:MBLY), the company has moved most of this technology in-house after a public dispute with Mobileye last year.
In May 2016, a Tesla was unfortunately involved in a fatal crash in Florida when a white truck (which blended in with the bright sky) crossed in front of a Tesla running in autopilot mode. While this was a public setback for Tesla, the National Highway Traffic Safety Administration later determined that the Tesla Autopilot system was not at fault. This is because 1) the Autopilot system is not expected to detect traffic crossing in front of a car, and 2) it was determined that the driver had seven seconds to react and apply the brake. In fact, Tesla's crash rate declined by 40% after auto-steer was introduced between 2014 and 2016.
After the accident, Tesla had a messy public breakup with Mobileye. While Mobileye claimed it had ended the relationship due to "safety concerns regarding the use of Autopilot hands-free," Tesla claimed that Mobileye had broken ties when it learned that Tesla was working on its own image-sensing technology in-house.
Unfazed, Tesla was able to drop Mobileye's EyeQ3 chip and quickly implement its own system called Tesla Vision, which incorporates GPU chips from NVIDIA. Former Advanced Micro Devices engineer Jim Keller was recruited to head this effort, which apparently wasn't too difficult, as the new version of Tesla Autopliot came out last October, only a few months after Mobileye cut ties.
Tesla has a number of driverless initiatives going forward, including an autonomous taxi program set to roll out in Dubai in 2020, a fully autonomous test-drive from New York to Los Angeles later this year, and more fully autonomous prototype testing in California and beyond.
While Tesla may still not be at Waymo's level in terms of self-driving test miles, it's moving remarkably fast on many fronts and closing the gap in the race to a fully autonomous future.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Alphabet (C shares), Apple, and Nvidia. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Apple, Nvidia, and Tesla. The Motley Fool has a disclosure policy.