Our Head of U.S. Internet Research Brian Nowak and Andrew
Percoco, Head of North America Autos and Shared Mobility
Research, discuss why adoption of autonomous vehicles is likely
to gain traction this year.
Read more insights from Morgan Stanley.
----- Transcript -----
Brian Nowak: Welcome to Thoughts on the
Market. I'm Brian Nowak, Morgan Stanley's Head of U.S. Internet
Research.
Andrew Percoco: And I'm Andrew Percoco,
Head of North America Autos and Shared Mobility Research.
Brian Nowak: Today we're going to talk
about why we think 2026 could be a game changer and a point of
inflection for autonomous vehicles and autonomous driving.
It's Thursday, January 8th at 10am in New York.
So, Andrew, let's get started. Have you ridden an autonomous car
before?
Andrew Percoco: Yeah, absolutely. Took a
few in L.A., took one in San Francisco not too long ago. Pretty
seamless and interesting experience to say the least.
Brian Nowak: Any accidents or awkward left
turns? Or did you feel pretty comfortable the whole time?
Andrew Percoco: No, I felt pretty
comfortable the whole time. No edge cases, no issues. So, all
five star reviews for me.
Brian Nowak: Andrew, we think your answer
is going to be a lot more common as we go throughout 2026. As
autonomous availability scales throughout more and more cities.
Things are changing quickly. And we kind of look at our model on
a city-by-city basis. We think that overall availability for
autonomous driving in the U.S. is going to go from about 15
percent of the urban population at the end of 2025 to over 30
percent of the urban population by year end 2026.
Andrew Percoco: Yeah, totally agree. Brian,
I'm just curious. Like maybe layout for us, you know, what you're
expecting for 2026 in more detail in terms of city rollouts,
players involved and what we should be watching for throughout
the next, you know, nine to 12 months.
Brian Nowak: We have multiple new cities
across the United States where we expect Waymo, Tesla, Zoox, and
others to expand their fleet, expand autonomous driving
availability, and ultimately make the product a lot more
available and commonplace for people. There are also new
potential edge cases that we think we're going to see.
We're going to have our first snow cities with Waymo expected to
launch in Washington, D.C.; potentially in Colorado, potentially
in Michigan. So, we could have proof of concept that autonomous
driving can also work in snow throughout [20]26 and into 2027 as
well. So, in all, we think as we sit here at the start of [20]26,
one year from now, there's going to be a lot more people who are
going to say: I'm using an autonomous car to drive me around in
my everyday practice.
Andrew Percoco: Yeah, that makes a lot of
sense. And I guess, what do you think the drivers are to get us
there, right? There's also some concerns about safety, adoption,
you know, cost structure. What are the main drivers that really
make this growth algorithm work and really scales the robotaxi
business for some of the key players?
Brian Nowak: Part of it is regulatory. You
know, we are still in a situation where we are dealing with
state-by-state regulatory approvals needed for these autonomous
vehicles and autonomous fleets to be built. We'll see if that
changes, but for now, it's state by state regulation. After that,
it comes down to technology, and each of the platforms needs to
prove that their autonomous offerings are significantly safer
than human driving.
That is also linked to regulatory approval. And so, when we think
about fleets becoming safer, proving that they can drive people
more miles without having an accident than even a human can – we
think about the autonomous players then scaling up their fleets.
To make the cars and fleets available to more people. That is
sort of the flywheel that we think is going to play out
throughout 2026.
The other part that we're very focused on across all the players
from Waymo to Tesla to Zoox and others is the cost of the cars.
And there is a big difference between the cost of a Waymo per
mile versus the cost of a Tesla per mile. And we think one of the
tension points, Andrew, that you can, you can talk about a little
bit here, is the difference in the safety data and what we see on
Tesla as of now versus Waymo – versus the cost advantage that
Tesla has. So, talk about the cost advantage that Tesla has
through all this as of right now.
Andrew Percoco: Yeah, definitely. So, you
know, as you mentioned, Tesla today has a very clear cost
advantage over many of the robotaxi peers that they're competing
with. A lot of that's driven by their vertical integration, and
their sensor suite, right? So, their vehicle, the cost of their
vehicle is – call it $35,000. You've got the camera only sensor
approach. So, you don't have lidar, expensive lidar, and radar in
the vehicle. And that's just really driven a meaningful cost
improvement and cost advantage. On our math about a 40 percent
cost advantage relative to Waymo today.
Now going forward, you know, as you mentioned, I think the key
hurdle here or bottleneck, that Tesla still needs to prove is
their safety. And can they reach the same safety standards as a
human driver? And, you know, the improvement that you've seen
from Waymo.
You know, to put some numbers around this. Based on publicly
available data in Austin, Tesla's getting in a crash, you know,
every about, call it every 50,000 miles; Waymo is closer to every
400,000 miles per crash. So today, Waymo is the leader on
safety.
I think the one important caveat that I want to mention here is
that's on a relatively small number of miles driven for Tesla.
They've only driven about 250,000 miles in Austin, whereas
Waymo's driven close to, I think, a hundred million miles
cumulatively.
So, when you look back, I think this is going to be the kind of
key catalyst and key data point for investors to watch is – how
that data improves over the course of 2026. If you track Waymo –
Waymo's data improved substantially as their miles driven
improved, and as they launched into new cities.
We'd expect Tesla to follow a similar trend. But that's going to
be a huge catalyst in validating this camera only approach. If
that happens, Tesla's not limited in scale, they're not limited
in manufacturing capacity. You can meaningfully see them expand…
Or you can see them expand quite quickly once they prove out that
safety requirement.
Brian Nowak: I think it's a great point
because, you know, one of the other big debates that we are all
going to have to monitor in the AV space throughout 2026 is: How
quickly does Tesla completely pull the safety drivers, and how
quickly do they scale up production of the vehicles? Because one
of the bank shots around autonomous driving is actually the
rideshare industry. You know, we have partnerships; some
partnerships between Waymo and Uber and Waymo and Lyft. But Tesla
is not partnering with anyone.
And so, I think the extent to which we see a faster than expected
ramp up in deployment from Tesla can have a lot of impact. Not
only on autonomous adoption, competition with Waymo, but also the
rideshare industry.
So how do you think about the puts and takes on Tesla and sort of
removing the drivers and scaling up the fleet this year? What
should we be watching?
Andrew Percoco: Yeah, so they've already
made some strides there in Austin. They’ve pulled the safety
monitor. They haven't opened that up to the public yet without
the safety monitor. They're still testing, presumably in that
geography.
They need to be extremely careful in terms of, you know, the
regulatory compliance and making sure they're doing this in a
safe way. Ultimately that's what matters most to them. We do
expect them to roll it out to the public without the safety
monitor in 2026. Whether or not, that's the first quarter or the
third quarter – is a little bit tougher to predict. But I think
it's reasonable to assume whatever the timeline is, they're going
to make sure it's the safest way possible to ensure that there's,
you know, no unintended consequences as it relates to
regulation, et cetera.
I think one, also; one important data point or interesting data
point here. You know, we model, I think, a 100 percent CAGR in
miles driven, autonomous miles driven through 2032. You can talk
a little bit about, you know, what the implications for
rideshare, but I think important. It's important to contextualize
that would still only represent less than 1 percent of total U.S.
miles driven in the U.S.
So substantial growth over the next, call it six or seven years.
But still a massive TAM to be tapped into beyond 2032. And I
think the key there is – what's the cost reduction roadmap look
like? And can we get robotaxis to a point where they are cheaper
than personal car ownership? And could robotaxis at some point
disrupt the car ownership process?
Brian Nowak: Yeah. And the other more
important point around rideshare will be how much do these
autonomous offerings expand the addressable market for rideshare
and prove to be incremental? As opposed to being cannibalistic on
existing ride share rides. Because you're right that, you know,
even our out year autonomous projections still have it less than
1 percent of the total trips.
But the question is how much does that add to ride share? Because
in some scenarios, those autonomous trips could end up being 20
to 30 percent of the rideshare industry. This matters for Uber
and Lyft because while they are partnering Waymo and other
autonomous players across a handful of markets, they're not
partnered in all the markets. And in some markets, Waymo is going
alone. Tesla is going at it alone.
And so when we look at our model and we say as of 2024, Uber and
Lyft make up 100 percent of the ride share industry based on the
current partnerships, which includes Waymo and Tesla and all; and
Zoox and all the players, we think that Uber and Lyft will only
make up 30 percent of the autonomous driving market.
And so it's really important for the rideshare industry that
when, number one, we see AV’s being incremental to the TAM; and
two, that Uber and Lyft are able to continue to add more
partnerships over time to drive more of that overall long-term AV
opportunity and participate in all this rideshare industry over
the next five years.
Andrew Percoco: I think it's really clear
that the future of autonomous vehicles is here and we've reached
an inflection point; and there's a lot of interesting catalysts
and data points for us and for investors to watch for throughout
2026.
So Brian, thanks again for taking the time to talk.
Brian Nowak: Andrew, great speaking with
you. And thanks for listening. If you enjoy Thoughts on the
Market, please leave us a review wherever you listen and share
the podcast with a friend or colleague today.
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