Was the rush to develop self-driving cars a factor in the death of a pedestrian in Arizona?

That question is on a lot of investors' minds in the wake of news that a prototype self-driving vehicle owned by Uber Technologies struck and killed a pedestrian in Tempe, Arizona, Sunday night.

Uber is hardly the only company rushing to bring a self-driving vehicle to market. But Uber is under some unique pressures as its future profitability depends on a transition to self-driving to reduce costs -- and there are other well-funded efforts aiming at the same market.

Combine those pressures with what has been -- so far -- a lax regulatory environment for companies testing self-driving vehicles on public roads, and a serious accident may have been inevitable. But what does this mean for the future of self-driving technology?

A Volvo SUV with Uber logos and visible self-driving sensor hardware is shown parked in San Francisco.

A Volvo fitted with Uber Technologies' prototype self-driving system struck and killed a pedestrian in Arizona on Sunday. The incident has brought increased scrutiny of the practice of testing self-driving vehicles on public roads. Image source: Uber Technologies.

The industry is rushing to bring self-driving cars to market

The list of companies working to bring self-driving cars to market is long and ranges from giant global automakers to tiny tech start-ups. But there are a few efforts that could put considerable pressure on Uber in the near future:

  • General Motors (GM -1.04%) has said that it will roll out a fleet of self-driving vehicles for ride-hailing duty next year. GM recently showed a prototype self-driving vehicle with no steering wheel or pedals that it's aiming to begin mass-producing within months.
  • Waymo, the Alphabet (GOOGL -0.28%) (GOOG -0.35%) subsidiary formerly known as the Google Self-Driving Car Project, is moving at a similar pace. Waymo has been operating test vehicles without human backup drivers in Arizona since November, and recently received approval from that state to operate an automated ride-hailing service, though it's not yet clear when Waymo will actually launch that effort.
  • Tesla's (TSLA -0.32%) Autopilot system is a work in progress, and the company was heavily criticized in 2016 after a Tesla operating on Autopilot struck a tractor-trailer at full speed, killing the car's driver. But Tesla's system has since been retooled, and CEO Elon Musk has hinted that the company may offer its owners a way to operate their vehicles in automated ride-hailing service when they're not otherwise in use.

Uber is no slouch in this competition. The company has an in-house effort to develop self-driving technology, and has been operating self-driving test vehicles on public roads since 2016. More recently, it struck an agreement with Swedish automaker Volvo Cars under which Volvo is supplying vehicles for Uber's test fleet, and the two are sharing some technology.

A view of the dashboard of the GM Cruise, a prototype self-driving vehicle. The car has no steering wheel or pedals.

General Motors is aiming to deploy fleets of self-driving vehicles in ride-hailing service in several American cities next year. Image source: General Motors.

The thing to understand is that this is a race, and the key players in this race see it as a high-stakes affair. As GM president Dan Ammann argued persuasively in November, the first company to deploy self-driving vehicles in ride-hailing service on a large scale may realize a significant competitive advantage, in part because these systems improve with experience -- and customers will tend to opt for the provider with the best system:

If you can get to that minimum viable product [a system that is safer than a good human driver] first, and you can deploy in the most complex environments, and you can deploy at large scale, and you can get onto that learning curve before anyone else and accelerate up that learning curve faster than anybody else, you open up a pretty large and unique lead relative to anyone else that might come in behind you.

The takeaway: The first company (or first few companies, at least) to commercialize automated ride-hailing on a large scale may be in position to realize the majority of the profits in the space over time. As one of the largest (human-driven) incumbents in the ride-hailing business now, Uber is feeling a lot of pressure to be among those first movers. That pressure might turn out to have been a factor in Sunday's accident.

There isn't much regulation yet

Something else might have been a factor in that accident: There isn't a lot of regulation around self-driving vehicles on public roads yet.

That's especially true in Arizona, where Governor Doug Ducey has sought to make his state a hub of self-driving testing by contrasting its low-red-tape environment with regulation-heavy California. But more broadly, there isn't yet an agreed-on process for deciding whether a self-driving system is "safe" for testing on public roads, much less whether it's safe for commercial deployment. That might be about to change.

A Chrysler Pacifica Hybrid minivan with Waymo logos and visible self-driving hardware is shown on a public road in Chandler, Arizona.

Waymo is among the companies operating self-driving test vehicles in Arizona. The company was the first to receive permission from the state to deploy self-driving vehicles in ride-hailing service. Image source: Fiat Chrysler Automobiles.

What should investors expect here?

At minimum, I think it's a safe bet that this fatality will lead regulators -- if not in Arizona, then likely in Washington, D.C. -- to take a close look at self-driving test efforts with an eye toward setting some minimum standards for companies wishing to operate on public roads.

I also think it's likely that efforts to operate self-driving vehicles in commercial service will come under heavier scrutiny. We may see a push to develop standards that such an effort would have to meet before being allowed to operate. That may take some time -- and that may hold back the more ambitious programs.

Long story short: The rush to deploy self-driving vehicles may have just hit a big speed bump. If you're invested in a company in this space, keep a close eye on developments.