California DMV Squashing Auto Innovation

From the rugged coastline to the redwood forests and fantastic array of wineries in Sonoma and Napa, the area around San Francisco is one of the most beautiful places on Earth.

Heck, it’s such a great area, I can almost understand why tech companies put up with California! Why?

Well, for as much press as Silicon Valley gets as America’s hub of technology, there are some drawbacks to California.

For one, it’s an expensive state. And its water shortage issues are well-documented, too.

But for tech companies, there’s a bigger boogeyman – the ultimate boogeyman, in fact…


Even the area’s natural beauty can’t make up for the state’s regulatory structure – one that’s stifling  tech companies as they try to create the future.

The most recent regulatory barrier comes from California’s Department of Motor Vehicles (DMV)…

The Innovation Squashers

Let’s face it… nobody likes the DMV.

But automakers and tech companies in California really don’t like the DMV. Why?

Because the body  just released its draft regulations  for autonomous cars. Rules that almost seem designed to kill this nascent industry before it’s even born.

For example:

  • Autonomous cars are required to have driver controls.
  • Drivers are required to have a special dispensation beyond a standard driver’s license in order to operate an autonomous vehicle.
  • Manufacturers are required to collect and dispense a huge amount of information that isn’t ordinarily necessary.  It would be the equivalent of Ford Motor Co. (F) collecting information every time one of its cars got into a fender bender.
  • And worst of all, it will be illegal to sell autonomous vehicles – they can only be leased.

As my colleague Louis Basenese mentioned on Monday, the only thing standing in the way of driverless car technology (because the technology is coming – and, indeed, it’s mostly already here) is regulation.

And California is quite good at the latter…

Just Another of California’s Regulations

This stifling of the autonomous car industry  follows a California Department of Labor decision to classify Uber drivers as “employees” instead of independent contractors, delivering a blow to a different budding industry.

At the time of the Uber decision, I gave the Department of Labor a pass because the administrative judge had to choose between two equally unpalatable alternatives. The department just doesn’t have the discretion to invent new classifications of workers, even if it’s a good idea.

But as for the autonomous car regulations, there is simply no excuse. The DMV does have  wide discretion for creating the rules it puts  forward. Not to mention the fact that it’s  well aware of California’s central role in autonomous driving technology in the United States.

We Do Need Regulation… But It Must Be Sensible Regulation

Don’t get me wrong…  some form of regulatory oversight is certainly necessary for autonomous cars. The fact that they’re a technological achievement won’t make  manufacturers immune to the temptations that have led some of them to cheat on other regulations. Nor will the cars prevent drivers from thinking up ways to abuse the autonomy for some purpose – at least not yet!

But there are two major concerns about the regulations the DMV has issued:

  1. They’re Too Strict: Given that autonomous car technology is at such an early stage, the regulations are far too strict. Manufacturers naturally have a powerful incentive to make autonomous vehicles correctly, but the definition of “correctly” is something best left to the market at this point. Early adopters aren’t stupid, and neither they nor the manufacturers want to be liable for any safety issues. After all, the point of autonomous cars is to increase safety. The DMV should allow the market to develop and react to problems as they arise.
  2. In Government, Inertia Rules: The second concern is the future. Bureaucracies are ruled by inertia first, followed by all other forces. Regulatory schemes are rarely replaced, so overregulation and/or bad regulation now will almost certainly create a regime where it’s all but impossible to create good regulations in the future.

Alphabet (GOOGL) is right when it says that with these regulations, California “is already writing a ceiling on the potential for fully self-driving cars.”

Fair point. After all, well over 90% of accidents are caused by human error. So an autonomous car would have to be pretty bad to actually be more dangerous than even the best-trained human driver.

Does the California DMV think that Alphabet, Tesla Motors Inc. (TSLA), Apple Inc. (AAPL), and the others working on these cars will put out a bad product that’s not up to their usual sky-high standards and is a magnet for litigation?

Driverless car technology continues to be one of the top tech trends on our radar – and as we’ve said numerous times before, a driverless car world is inevitable. As such, so is regulation.

As Louis mentioned, federal guidance is prompting states to draft legislation in preparation for this reality. But perhaps it’s time for California’s government to form a better opinion of the innovative people and companies that have made it the richest state in the nation, and served customers around the world with distinction for several generations.

To living and investing in the future,

Greg Miller

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Greg Miller

, Senior Analyst

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