Tesla (NASDAQ:TSLA) shares soared 6% on Monday after Bloomberg reported the incoming Trump administration planned to enact "a federal framework for fully self-driving vehicles”, which could pave the way for wider adoption of self-driving technology.
The Bloomberg reports said Trump's team was looking for policy leaders for the transport department to develop a federal regulatory framework. This comes just days after Trump named Tesla CEO Elon Musk as a co-head of the incoming administration's government efficiency department.
Such a framework for autonomous cars would provide Tesla with a roadmap to follow, while also imposing regulatory burdens on the industry. This would likely see larger, better-capitalised companies like Tesla have an advantage over smaller start-ups.
In the weeks after unveiling Tesla’s 'Cybercab' robotaxi that’s set to go into production in 2026 and will have no steering wheel or foot pedals, Musk last month criticised the state-by-state approval process for self-driving vehicles as “incredibly painful”.
Musk has previously advocated for federal regulation and as a major backer of Trump's presidential campaign, investors seem to assume that support will translate into government regulation that favours Tesla — the EV automaker’s shares are now up 36% from the start of the year.
Yet regulation is not the issue holding Tesla back as the company's Full Self-Driving (FSD) driver assistance software that is still not fully autonomous and requires driver supervision.
Tesla is betting autonomous vehicles to help boost its gross margins, which have fallen from more than 25% in 2021 and 2022, to just over 18% in the past 12 months.
It looks unlikely that Tesla's EV business will be able to regain its former profit margins as margins on electric cars, across the board, have fallen after early adopters entered the market demand has dwindled, while competition mounts as more companies field electric alternatives.
By building an autonomous cars business Tesla would see a path to greater profitability, via software licensing and rental fees on fleets of new Cybercabs and Robovans.
Yet it is still to be seen what form regulation will take, whether from the National Highway Traffic Safety Administration, over which Trump would have greater control, or from laws passed by Congress, where the outcome would be less certain.