Tesla CEO Elon Musk said he expects the company will release an "unsupervised" version of FSD, an advanced driver assistance system currently offered by the automaker, in Texas and California on some Model 3 and Model Y in 2025.

He also said Tesla would begin building its robotaxis, or cars made without a steering wheel or pedals, in 2026 or 2027.

While we don't expect Musk to complete by that timeline, the readiness of both unsupervised FSD and robotaxis without human controls opens up a series of issues for regulators to grapple with.

Let's break it down.

What's an 'unsupervised FSD' even?

FSD stands for 'Full Self-Driving,' but it is not full autonomy and doesn't exist in these terms yet. Still, these cars can execute some autonomous driving characteristics both within cities and along highways. Following being sued for false advertisement on the misnomer, the company changed FSD's branding to "FSD Supervised" from "FSD Beta" in April. This nomenclature tweak more clearly states the obvious fact that a human driver will still have to be vigilantly paying attention behind the wheel and will need to take control when necessary. We would take it that "unsupervised FSD" meant either a fully driverless Level 4 system or to a "hands-off, eyes-off" Level 3 system similar to Mercedes's Drive Pilot or General Motors's underdevelopment. Level 4 means the vehicle will be automated at all times and in specific contexts, whereas Level 3 demands an intervention by a human driver who takes the hand on the wheel or on the controls if the system calls for it.

How do these mean for regulatory purposes?

Tesla said it plans to launch an unsupervised version of its expensive software in California and Texas next year. Musk did not specify if it would be an over-the-air update, or if customers will have to shell out some extra money for the more advanced technology.
Either way, Tesla should be able to push over-the-air software updates to Model Ys and Model 3s in Texas, where the company is headquartered, sometime next year with only minimal regulatory scrutiny. Texas's laws governing autonomous vehicles basically require that businesses are free to deploy AVs with or without a human driver present so long as the vehicle can comply with traffic and motor vehicle laws and is equipped with a recording device and registered and covered by motor vehicle liability insurance.

That being said, by 2025, the state Legislature might need to vote on pending bills that will require AV companies to report to Texas Department of Motor Vehicles when human drivers get out from time to time, among many more measures to take.

In California, it will never be as easy as that since the state's DMV has several permits.

It already has a drivered testing permit with more than 30 other companies to test autonomous technology with a safety driver on public roads. A California DMV spokesperson said that Tesla has held this permit since 2015, and the last time the company reported using it was in 2019, according to TechCrunch.

The company does not have, nor has Tesla applied for, a driverless testing or deployment permit, said Chris Orrock, a spokesperson at the CA DMV's information office. If Tesla intends to increase its number of permitted test vehicles in California, it would need to identify which vehicles are being tested (year, make, model, etc) and apply to add these new vehicles to their permit. They would also be required to amend the permit with drivers performing the tests.

A "driverless testing permit" would give the companies the ability to run their tests on public roads with their driverless vehicles without a person sitting in the front seat. A "deployment permit" would allow companies to deploy the vehicles, but only for non-passenger-carrying applications such as food delivery.

If "unsupervised FSD" means Tesla will deploy a level 3 system next year, it would have needed only the deployment permit. But if what industry insiders tell TechCrunch is the likelier scenario – where Tesla rolls out a level 4 system, like the one Waymo currently operates in a number of cities – then the firm would have needed to get a driverless testing permit first, followed by a deployment permit.

Tesla would need to seek yet another permit from the California Public Utilities Commission if it is to venture into the ride-hail business and, with such entry, charge passengers a fare. The agency wouldn't comment on whether Tesla has applied. End.

They can only go on freeways and highways, not on surface streets, in the San Francisco Bay Area, Los Angeles, Sacramento, and San Diego. They will only be allowed to drive during the day and in good enough weather conditions for freeways and highways – no highway of course flooding or snowstorms – and with a top speed of 40 miles per hour. So essentially, they are going to be most useful when you are sitting in traffic on the highway and would rather use that time to check your email or scroll Instagram. The robotaxi could defy federal safety standards. There are claims by Musk that Tesla will begin production of its robotaxi by 2027 at the earliest. (FYI: Remember how in 2019 Musk promised Tesla would have 1 million robotaxis on roads by 2020? And how in 2022 Musk promised Tesla would be mass-producing the robotaxis by 2024?)

Whether Tesla manages to meet this deadline by 2027 or not, federal motor vehicle safety standards (FMVSS) are likely to act as an obstacle to the launch of these vehicles, conceived so far without a steering wheel and pedals.
In case Tesla is serious about large-scale mass production of its robotaxis without a conventional driver's wheel and pedals, it must seek exemption from FMVSS.

As TechCrunch observed that was confirmed by the NHTSA about Tesla regarding its driverless Cybercab for which no exemptions had applied.

The National Highway Traffic Safety Administration has so far granted only one exemption to Nuro for the production of its R2 low-speed delivery vehicles, since they are not at all designed to carry human passengers.

General Motors had sought an exemption in 2021 to mass-produce Cruise's Origin vehicles but never got it and has since dumped those plans. Amazon's Zoox is holding out too, for exemptions on its robotaxi though it has gotten approvals for testing not full-scale production.

NHTSA was scheduled to announce a new rule-making to account for AVs that did not include human controls, or even such obvious items as windshield wipers, last September, but that rule-making has been delayed. The agency responded to TechCrunch saying it was working to publish the proposed rule "soon.".

It's this kind of tricky regulatory landscape-and Musk's vagueness about how Tesla intends to navigate such regulations, how Tesla's FSD tech has advanced, and more details about the company's go-to-market strategy-that got investors spooked after the company's splashy event last week. Tesla's stock fell nearly 10% Friday and hasn't yet fully recovered.