August 25, 2025
A little-known federal rule, AV STEP, could transform the economics of autonomous vehicles by allowing cars without steering wheels or pedals to deploy at scale. Capstone believes it will be finalized by 2027, setting Tesla and Amazon’s Zoox up for early wins, opening new opportunities for Waymo, and spurring Uber and Lyft to rethink their playbooks.
We sat down with Capstone’s autonomous vehicle analysts Shaky Salimjonova and Ian Tang to discuss their latest research on the AV sector and what investors and companies need to know about this rapidly evolving market.
Q: Let’s start with the regulatory landscape. What’s the most significant development investors should be tracking?
A: The AV STEP rule is a key federal regulatory milestone for autonomous vehicles. We assign an 85% probability that it will be finalized by July 2027. This rule would create a voluntary oversight framework for self-driving vehicles, creating an exemption pathway for those that don’t meet traditional safety standards at the federal level, such as those without steering wheels or pedals. Currently, manufacturers face a 2,500-vehicle annual cap for these unconventional AVs. AV STEP would enable commercial deployment at scale.
Q: Why are you so confident this rule will pass given the regulatory uncertainty in this space?
A: Several factors support our 85% probability. First, this builds on the groundwork laid by the first Trump administration. Second, new National Highway Traffic Safety Administration (NHTSA) administrator nominee Jonathan Morrison explicitly stated in his confirmation hearing that “the state of technology has moved forward,” and it’s time to build new regulations. The Trump administration’s focus on innovation and deregulation actually aligns well with enabling AV deployment, and it is something Republicans have wanted to take more aggressive action on.
Q: Your report emphasizes cost structure. Why is this so critical for understanding the AV market?
A: Cost structure determines who can profitably scale. The disparities are staggering—Tesla is targeting $30,000 per Cybercab robotaxi while Waymo’s current robotaxis cost around $150,000. That’s a 5x difference. The main driver is sensor choice: Waymo’s LiDAR suite costs $9,300 versus Tesla’s camera-based approach at $400. That said, Waymo would likely need to achieve cost reductions in other areas to be competitive and maintain the lead its built, and a way is through simpler vehicle designs enabled by AV STEP. It’s about achieving price points that make robotaxi services economically viable against human drivers.
Q: Which companies have made the most tangible progress toward commercial deployment?
A: Waymo is the clear leader with 1,500 vehicles providing paid rides today and plans to add 2,000 more by 2026. But Tesla and Amazon’s Zoox are currently best positioned to benefit from AV STEP, and subsequently achieve cost savings, because they’ve already designed vehicles without traditional controls. Zoox just received exemptions for testing their vehicles and are planning commercial launches in Las Vegas, but it’s unclear if they would be able to do so under the current regulatory framework. Tesla aims to produce Cybercabs by 2026.
Q: What’s your investment outlook for the major players?
A: Tesla and Zoox are best positioned for the AV STEP regulatory framework given their unconventional designs. Waymo is leading the current robotaxi market but needs to address its cost structure. The challenge is that pure-play AV exposure doesn’t yet exist—you’re buying Tesla with all of Musk’s ventures, or getting Waymo buried in Alphabet’s $2 trillion market cap. Uber and Lyft might offer the clearest way to benefit from AV deployment without the development risk.
Q: Are there underappreciated dynamics affecting market development?
A: Two big ones. First, the Trump administration’s 10-for-1 regulatory offset requirement creates pressure against new rules, but AV STEP survived the recent culling of pending regulations. Second, the shift in NHTSA staffing—about 50% of the Office of Automation Safety was terminated—could slow progress despite Morrison’s commitment to rebuilding. These administrative realities might extend timelines beyond what the technology would otherwise enable.
Q: What risks should investors consider?
A: Tesla faces significant headwinds when it comes to scrutiny around the autonomous capabilities of its vehicles and how it markets those features. Morrison has criticized their “misleading” safety claims. They’re under an NHTSA investigation, and recently lost a $243 million verdict in a fatal Autopilot case brought by private litigants. For Waymo, the risk is that competitors achieve similar safety with dramatically lower costs. And broadly, a patchwork of state-level regulations for operation could slow deployment even if federal rules advance, especially given some of the labor dynamics.
Q: What’s your key takeaway for investors?
A: The Trump administration is likely to take a more favorable regulatory approach towards autonomous vehicles, and this new AV STEP rule will serve as a bellwether to its stated policy priorities. AV STEP would allow for the commercial rollout of unconventional AVs and enable cost-efficient designs, something that’s lacking in current regulations. We expect a stronger federal role in supporting AV deployment, already reflected in recent moves like streamlining the processes for existing exemptions.
Shaky Salimjonova, TMT Analyst
Ian Tang, TMT Analyst
Read more from Capstone’s TMT team:
Challenging the Giants: Big Tech’s Growing Antitrust Battles in Court
Charting AI’s Course: Identifying the Accelerators and Roadblocks Ahead
Firewall Frenzy: Cyber Vendors Benefit Amid Rising Global Tensions
