Tesla's robotaxi dreams are becoming an insurance nightmare

• Tesla faces several regulatory hurdles before launching a robotaxi service.
• Insurance is already a complex issue for ride-hailing fleets and Tesla vehicles.
• High insurance costs could wipe out the profits of cybercab owners.

There are many hurdles that Tesla's promised robotaxi fleet must overcome before launch, but one overlooked hurdle could be the complexity of insuring a fleet of self-driving Teslas.

Insuring ride-hailing vehicles is already a complex issue. Uber and Lyft drivers typically have to purchase an additional policy to cover their vehicles, which can cost them an average of $31 more per month on top of their regular insurance policy, according to insurance comparison site The Zebra.

To make matters worse, Teslas are already more expensive to insure than the average vehicle. According to NerdWallet, the average annual price for a Tesla Model 3 is $2,221, compared to an industry average of $1,776 per year.

Those costs could undermine CEO Elon Musk's promise that Tesla would operate a robotaxi business that is a cross between Uber and Airbnb, where drivers who add their cars to the robotaxi fleet profit from their otherwise stagnant vehicles can.

“It's great that you have a cheaper vehicle,” said Jessica Caldwell, executive director of insights at Edmunds, referring to Tesla's $30,000 Cybercab. “But that can easily be offset by high insurance costs.”

The auto insurance industry has yet to fully embrace autonomous technology, and without insurance coverage, driverless Teslas cannot function.

“Insurers aren't even there yet in terms of evaluating these costs because there aren't really a lot of models that you can build right now,” Caldwell said.

Musk said Thursday evening that some Model 3s and Model Ys would be driving without drivers in Texas and California before the Cybercab hits the road, but it was unclear whether drivers would use their own cars as passengers whether Tesla would operate those cars would, or if Tesla owners could rent out their vehicles for driverless rides.

Musk has long said that autonomy will ultimately generate profits for owners and Tesla. But for ride-hailing companies, insurance payments are among Uber's biggest expenses, and analysts cite costs as one of the biggest obstacles to profitability.

Elon Musk's magic may be wearing off

For years, Musk has managed to woo investors with big promises and eye-catching product releases.

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But years of broken promises and a struggling electric vehicle market are making investors more skeptical than ever. Investors want to know when these big investments will pay off.

“While this all seems great, investors now want to know how realistic all these cool robots are and what the timeline is for making money from them,” Caldwell said. “Fundamentally, Tesla is still a car company right now, and they don’t care about the problems in that business.”

Investors were disappointed Thursday night after Tesla's long-awaited “We, Robot” event as Musk failed to provide specific details about his plan to launch a fleet of driverless taxis as early as next year, as originally promised. Instead, he promised the cybercab by 2027 and a futuristic one Robovan with no fixed date.

Following the incident on Thursday evening, shares fell about 8% in trading on Friday.

“With what is arguably the most highly anticipated product launch in Tesla's history, we had a number of expectations about what the market might experience that we believe had an impact on the direction and debate surrounding the stock,” said Morgan analyst Adam Jonas Stanley, who has a bullish $310 price target on the stock, wrote in a note to clients Friday morning.

“We were overall disappointed with the content and details of the presentation,” he added