Long-term miles growth and TAM context

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.

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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.