Waymo is scaling to city after city, but $Tesla Motors(TSLA)$ is falling behind, and very few vehicles today have “hands off” capability. Still, the foundation is being laid, and slowly but surely, there will be thousands, then millions, of autonomous vehicles on the road.
Today, I want to give you an idea of why I like the positions I have in the industry and explain why, long-term, the aggregator/modular supplier models will win.
Tesla’s Full Autonomy Is Delayed…Again
We can’t start a discussion of autonomous driving without mentioning Tesla.
In January 2025, I shorted Tesla stock via long-term puts, partly on the thesis that Tesla wasn’t going to reach full autonomy anytime soon, despite what Elon Musk said. Much of Tesla’s $1.4 trillion valuation is predicated on FSD and robotaxis taking over the world and…I’m skeptical.
I closed that original position for a 260% profit, but I took another short position via puts in January of 2026. Tesla stock is down 16.3% since that position was started, but given that I bought puts, I’m still down about 30% because options prices can be crazy!
But the idea that Tesla is going to win autonomy and crush every automaker is fading, even for the most bullish Tesla investors.
This week, Elon Musk admitted Tesla’s Hardware 3, which was installed in vehicles from 2019 to 2023, will never achieve unsupervised autonomy.
Unfortunately, Hardware 3, I wish it were otherwise, but Hardware 3 simply does not have the capability to achieve unsupervised FSD. We did think at one point it would have that, but relative to Hardware 4, it has only 1/8 of the memory bandwidth of Hardware 4. Memory bandwidth is one of the key elements needed for unsupervised FSD. It's just generally a thing that's needed for AI. If you're doing an autoregressive transformer, memory bandwidth is the choke point. For customers that have bought FSD, what we're offering is essentially a discounted trade-in for cars that have AI Hardware 4. We'll also be offering the ability to upgrade the car to replace the computer, and you also need to replace the cameras, unfortunately, to go to Hardware 4.
To do this efficiently, we're going to have to set up micro factories or small factories in major metropolitan areas in order to do it efficiently. Because if it's done just at the service center, it is extremely slow to do so and inefficient. We basically need many production lines to make the change. I do think over time it's going to make sense for us to convert all Hardware 3 cars to Hardware 4, because that's what enables them to enter the Robotaxi fleet and have unsupervised FSD.
Elon Musk on Q1 2026 conference call
Forgive me if I don’t believe Tesla will set up “micro factories” all around the world, but that’s a topic for another day.
The hardware failure should come as a surprise to no one. The cameras don’t have sufficient resolution, the chips don’t have the needed capacity, and camera-only hasn’t ever proven to be viable for full autonomy.
In fact, FSD is getting another overhaul. I was told v13 was a game-changer, but I’m sure v15 is the real deal?!?!
For Full Self-Driving and Robotaxi, version 14.3 was a major architectural update, and we have a whole pipeline of major improvements to Full Self-Driving that we believe will lead to unsupervised Full Self-Driving being available anywhere in the world that it is legal to do so. Then there's a version 15, hopefully by the end of this year, but certainly by early next year. That will be a complete overhaul of the software architecture, and will run on AI4. At that point, we're really just increasing the safety level of FSD above human safety level even more, meaning I think even within version 14, we're significantly safer than human, but V15 will take that to another level. We've expanded Robotaxi to Dallas and Houston, using the same software source in the Bay Area.
The limiting factor for expansion is really rigorous validation, making sure things are completely safe.
Elon Musk on Q1 2026 conference call
I bring up Tesla because if Tesla can’t build a vertically integrated autonomy business that takes over the market before everyone else figures out autonomy with multiple sensors, their supposed advantage evaporates.
Vertical integration can be a path to success when you have technology no one else does, but if the autonomous technology itself is a commodity, a different model will likely win.
That’s where I think we’re headed.
Waymo Charges Ahead
One model that’s winning is Waymo’s, which I own through $Alphabet(GOOG)$ , the biggest position in the Asymmetric Portfolio.
Waymo decided to prove the safety of full autonomy before worrying about vehicle costs (Tesla did the opposite).
As it turned out, this was a wise strategy.
Today, Waymo is working to scale operations with commercial operations in 11 cities and validation underway in more than a dozen others.
Three years ago, the company was only offering a few hundred rides per day in San Francisco.
This is the blueprint for everyone else.
Put a whole bunch of sensors on a vehicle, validate operations and safety, then scale and eliminate costs.
I think Waymo can be a huge success. But it also doesn’t have the ambition to own the market the way Tesla did. If no one else catches up in the next year or two, maybe we will see Waymo continue to scale and get users on its app, reaching a #2 or #3 market share in ride sharing in cities it operates in.
But Waymo isn’t foreclosing the competition.
Mobileye’s Progress
Most of the autonomy attention goes to Waymo and Tesla, but there’s a slow and steady increase in the number of deals OEMs are making in autonomy. $Mobileye Global Inc.(MBLY)$ is my investment in a modular supplier who can develop autonomy once and sell/license the technology to dozens of OEMs worldwide. This is exactly what Mobileye does with its ADAS products today.
This week, Mobileye reported earnings and revenue jumped 27% to $588 million, and adjusted earnings per share increased 50% to $0.12. The company also announced a $250 million buyback program.
The market finally responded positively after punishing Mobileye for most of the past year.
We are seeing Mobileye take steps in developing autonomous solutions, but very few have made their way into production or generated any kind of real revenue. That’s in part because of the company’s methodical approach and part because OEMs are slowly and cautious when it comes to autonomy.
But we should see higher value systems, like Surround ADAS and Supervision, make their way into more vehicles over the next few years.
We were recently awarded a high-volume Surround ADAS program with a major U.S. OEM, expected to deploy the EyeQ6 High processor and Mobileye’s software stack across a wide range of price and model segments within the OEM’s upcoming software-defined vehicle architecture. Future expected volume from Mobileye’s first two Surround ADAS customers now totals 19 million units, with additional OEM engagements progressing well and expected to convert in 2026.
Mobileye Q4 2025 earnings release
Fully autonomous robotaxis are also progressing.
The Mobileye Drive / MOIA / VW ID.Buzz robotaxi ecosystem progressed significantly during the first quarter. VW and MOIA announced the kick off of pre-series production at VW’s Hanover plant in March. MOIA America and Beep announced Orlando as their initial test deployment location, and began on-road validation testing with Uber in Los Angeles. There are now more than 100 ID.Buzz AVs powered by Drive testing on public roads in six cities (LA, Austin, Orlando, Munich, Berlin, and Hamburg), with Oslo coming soon. We believe Mobileye Drive technology has meaningful scaling advantages over the competition and look forward to continued strong execution over the course of 2026.
Mobileye Q1 2026 earnings release
Over 100 vehicles with fully autonomous capabilities are driving today, and once the validation phase is complete, the company can expand to more markets in 2027.
In Q1, Volkswagen announced the start of pre-series production of the ID. Buzz autonomous vehicle in a Hanover facility, with vehicles coming off the regular assembly line with Mobileye's fully integrated self-driving system. Volkswagen's ability to produce fully integrated robotaxis at scale from an active automotive production line is very unique. MOIA, the Volkswagen division that will deploy these vehicles, announced that testing had begun in L.A. for the Uber collaboration. They also announced today that Orlando is the first launch city in collaboration with Beep. For both of these efforts, the path to commercialization is as follows. We continue the current process of testing, data collection, and validation.
Once we achieve sufficient proof points, we'll begin accepting commercial riders with a safety driver until a required level of performance has been proven that allows us to remove the safety driver. That is the point where the scaling advantages of our approach, including crowdsourced mapping, our deep and diverse global data set, and Volkswagen ability to ramp up production rapidly, will be self-evident in terms of ability to expand geographic areas of operation more rapidly than competitors. It's another opportunity for Mobileye to prove its end-to-end capability in terms of executing complex physical AI systems at scale. All of this experience over the next two, three quarters would feed back to further improvement and fine-tuning to be ready for scaling in Europe once the ID. Buzz is fully homologated and certified, which is targeted for the first half of 2027.
Q1 2026 earnings call
Tesla says v15 is coming next year, but so are Mobileye’s fully autonomous vehicles with Volkswagen. And with partnerships with some of the biggest automakers in the world and a chance to increase the revenue per car by 100x or more, Mobileye’s financials should hit an inflection point in 2027.
The Other Players
Tesla, Waymo, and Mobileye aren’t the only players in autonomy, though. May Mobility is operating near me.
AV Ride now has over 200 vehicles in its fleet.
Nuro has “almost 100” Lucid vehicles operating, and some of those are already being tested on Uber.
There are another dozen companies around the world in various stages of testing and deployment. Not all will succeed, but I think it’s clear autonomy isn’t as far away as it seems.
A Win for Uber & Lyft
I own shares of Alphabet partly because of autonomy, and I think Mobileye’s risk/reward is strong. But the biggest bet I have in autonomy is $Uber(UBER)$ and $Lyft, Inc.(LYFT)$ .
These are the aggregators of demand in ride sharing and delivery.
They’re the apps we choose to interact with.
Waymo may be able to build its own network with scale, and Tesla can if it ever gets to full autonomy. But Nuro, Mobileye, May Mobility, and others will need to outsource demand generation to keep vehicles utilized.
That’s where Uber and Lyft come in. They’ll add autonomous vehicles to the fleet with humans filling the gaps.
But long-term, a driver that can operate 24/7 at a lower cost than humans will be the winner in the supply market.
And the economic win will likely go to the aggregators.
It’s going to be a big few years ahead, and if autonomy scales like I think it can, the world may change before you know it.
Comments