Who will use Tesla’s robo-taxi? There are 2 big challenges.

Will American consumers trust robots? And will damage to the brand done by CEO Elon Musk’s politics jump from Tesla cars to Tesla taxis?

Investors will get early indications on both points on Sunday, when the electric-vehicle company is set to launch its robo-taxi service in Austin, Texas on Sunday. Invitations to a select group of customers have been sent out, allowing people to hail a handful of cars operating in a relatively small area.

Human safety monitors will be sitting in the front passenger seat, and Tesla will have so-called teleoperators standing by to step in remotely if needed. Alphabet’s Waymo, the dominant robo-taxi service so far, uses teleoperators as well.

The modest launch might be a disappointment, but it is still a very big deal. It’s a chance for Musk to finally deliver self-driving cars, after promising them repeatedly for the better part of a decade, wrote Guggenheim analyst Ronald Jewsikow in a recent report.

“The June robo-taxi launch represents a seminal achievement after [years] of self-driving promises,” Jewsikow wrote. That is particularly positive in that it comes from an analyst who rates Tesla stock at Sell.

Expanding the service to bring in significant revenue, helping to justify years of investment, is a much bigger deal for Tesla and Tesla investors. A challenge to overcome there will be any potential pushback from consumers turned off by Musk’s support for President Donald Trump and rough-and-ready efforts to slash the size of the federal government.

Tesla car sales fell 13% year over year in the first quarter, partly because left-leaning shoppers, the group most likely to buy electric vehicles, steered clear of the brand. Wall Street expects a 10% decline in the second quarter, according to FactSet.

While Tesla management acknowledged challenges for the brand on their first-quarter earnings conference call, isn’t clear whether that will affect the robo-taxi launch. Like so much with Tesla, opinions vary widely.

“One hundred percent,” said GLJ analyst Gordon Johnson, when asked if Tesla’s brand problems will extend to robo-taxis. He said he doesn’t believe the technology is ready, citing the fact that Tesla has chosen to use in-car safety monitors.

“The backlash from consumers will likely be severe given it seems Tesla is endangering the driving public in Austin with this launch,” Johnson said. A longtime Tesla bear, he rates the shares at Sell.

Cantor Fitzgerald analyst Andres Sheppard, who rates the shares at Buy, doesn’t see any major backlash coming. “We don’t think so,” said Sheppard. “There should be some getting used to the vehicles and the technology.”

Aside from branding, the fact that the technology is unfamiliar could represent a barrier to adoption. Not everyone will feel comfortable without a driver, or even a safety monitor, in the car.

Still, that shouldn’t be a problem early on for any self-driving technology. “The people I talk to, colleagues and friends, are excited to [try] it,” says Zacks stock strategist Andrew Rocco, adding that early on, “Airbnb sounded like a crazy idea.” Rocco runs Zacks’ Technology Innovators Portfolio, which holds Tesla stock.

Alphabet’s Waymo hasn’t had trouble filling its self-driving cabs. It completes more than 250,000 paid cab rides each week with a fleet of some 1,500 taxis.

It is tough to argue that Waymos aren’t better than regular drivers. It reports 88% fewer crashes with serious injuries, and 79% fewer accidents in which air bags are deployed.

So far, self-driving cabs are doing just fine. “Consumers love robo-taxis,” Jewsikow said. Today, Waymo has about 15% of the ride-hailing market in San Francisco, up about 14 percentage points since the start of 2024.

Whatever happens, investors should brace for volatility. For months to come, every problem, be it an act of vandalism or a car unable to complete a trip, and every success, such as service expansion, will be scrutinized by investors and Wall Street.

Tesla investors, however, are used to that. Tesla stock, by some measures, is about three times as volatile as other large tech stocks.

Write to Al Root at [email protected]