In November, I wrote A Roadblock Removed to contextualize the rise in Tesla’s stock price and detail a potential regulatory shift that could benefit the company. The regulatory environment for autonomous vehicles (“AVs”) is ambiguous, with many state and local jurisdictions having the right to approve or disallow operators. I detailed the potential for NHTSA, the national regulatory authority for highway safety, to clarify their posture towards AVs and perhaps introduce more top-down regulations that could speed up innovation and testing. A newly published letter from the NHTSA does just that.
To date, all cars on the road must comply with the Federal Motor Vehicle Safety Standards (“FMVSS”), which mandate objects such as steering wheel, gas, and brake pedal in the car. However, the NHTSA had begun granting exemptions to AV companies building vehicles without steering wheels or pedals, like Cruise and Zoox. It was a clunky process for these companies to win these exemptions, but it suggested that regulators were—at least in limited cases—willing to test the idea that safety could be redefined by autonomy, not by the presence of human-operated controls.
Fast forward to today, we now have a clear letter from the NHTSA that reads less like a hesitant nod and more like a green light. In its response to a public interest group’s petition for reconsideration, the agency firmly upheld its decision to allow AV exemptions under Part 555—even explicitly referencing its statutory authority to depart from existing Federal Motor Vehicle Safety Standards (FMVSS) if the alternative would be “at least as safe as” conventional designs.
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The language in the June 2025 letter is revealing. The NHTSA acknowledges that the vehicles at issue “deviate from long-standing assumptions” but affirms that its review process weighs “an alternative safety case.” In plainer terms: safety no longer has to mean a steering wheel and brake pedal. It can mean software, redundancies, and AI-based control systems—and the companies can win approvals if they prove their case.
This new letter sets precedent in an increasingly AV-curious world. The NHTSA didn’t just wave away criticism about its previously burdensome review process—it responded point-by-point to concerns about transparency, safety metrics, and legal boundaries. It emphasized that each exemption is temporary and narrow, but it refused to roll back the door it opened. To use regulatory speak: the “discretionary nature” of Part 555 is very much intact and allows NHTSA wide ranging authority.
In summary, NHTSA’s June clarification of its review process for AVs to receive exemptions to the FMVSS rejects the idea that safety should be narrowly defined by legacy features. Instead, it affirms that technology can meet safety standards through redundancy, system design, and testing. For Tesla and other AV players, it marks one more roadblock removed.
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For more content by Blake Anderson, CFA®, Associate Portfolio Manager click here
