CryptocurrencyInvestingBanksReal Estate

Tesla Could Deliver ‘Full Self-Driving’ Within Weeks. Here’s What That Means for Drivers—and Tesla’s Stock

November 20, 2019, 8:30 PM UTC

During Tesla’s quarterly earnings call in October, CEO Elon Musk reiterated a striking projection: the company is on the verge of releasing its long-promised Full Self-Driving package.

“While it’s going to be tight,” Musk said, “It still does appear that we will be . . . in early access release of a feature-complete Full Self-Driving feature this year.”

Tesla has not clarified what an “early access” release would entail, and the electric carmaker is notorious for flexible timelines. But the end-of-year goal has held steady since at least February—and with the end of 2019 fast approaching, that would mean at least some Tesla owners could get Full Self-Driving within a matter of weeks.

Any release of Full Self-Driving (FSD) this year would be a massive public relations coup, giving Tesla at least some claim to be the winner of the decade-plus race to create a self-driving car. As a sizable bonus, the company says it would also allow nearly $500 million in revenue from pre-orders of the self-driving features, held off the books for years, to be recognized in quarterly earnings statements. This has the potential to transform Tesla’s near-term financial outlook.

Tesla did not respond to multiple requests to comment for this story. But it has admitted that cars will not be fully autonomous when Full Self-Driving is released. “There’s the car being able to be autonomous, but requiring supervision and intervention at times. That’s feature complete,” Musk said on the October earnings call. “And it doesn’t mean like every scenario, everywhere on earth, including every corner case, it just means most of the time.”

There is ample evidence, however, that Tesla drivers routinely use existing features such as Autopilot without following the company’s guidelines for driver supervision. And the kind of scenarios Musk says FSD won’t be able to handle on release have already led to accidents of varying severity for users of other autonomous features.

Under these circumstances, the imminent release of FSD suggests at least the shadow of a conflict of interest, with Tesla’s bottom line and stock price in the balance against public safety.

The gold at the end of the self-driving rainbow

The half-billion dollars in deferred revenue from Full Self-Driving came from Tesla buyers who have pre-ordered the feature since 2016 for a surcharge of as much as $7,000. Customers who bought the feature got an onboard computer and all the hardware required for the car to drive itself—but without the software, which remains in development. When the software is declared complete, properly equipped Teslas will receive it via an over-the-air software update to those pre-installed hardware units. Tesla has not yet said whether it will roll it out to all drivers at once, or test it with smaller subsets.

Roughly half a billion dollars in presales would then be recognized as revenue, which Tesla said in June it would do over 12 months. A further portion of deferred FSD revenue, previously stated by the company as $316 million, would be recognized over the 8 year lifespan of each vehicle.

The $500 million referenced in October, spread evenly over the next four quarters, would add roughly $125 million per quarter to the bottom line. Though Tesla’s balance sheet shows big changes from quarter to quarter, some sense of the impact can be gained from looking at prior quarters. Adding $125 million in revenue to Q3 2019 results, for instance, would have increased operating profit by nearly 50%. Adding it to Q2 2019 would have cut operating losses by 74%. And because Tesla is considered a growth company, those changes could have an exaggerated impact on analyst’s projections of the company’s future growth.

Feature complete” vs. completely functional

To be sure, Tesla has previously been aggressive about releasing features in semi-functional “beta” form, and the company is already warning that FSD will need further refinement after release.

On the October call, Musk specifically said FSD may not be prepared to deal with “corner cases” on release, making driver intervention necessary. These cases—better known as “edge cases”—include the truly unpredictable events common on mid-speed surface streets, from construction changing the flow of traffic, to large objects in the road, to pedestrians and cyclists.

“Edge cases” may have already misled existing Tesla autonomy features, such as the Autopilot feature for highways. One particular edge case, semi trucks turning across oncoming highway traffic, has allegedly contributed to two fatal accidents.

“Edge cases” are the main reason most manufacturers have slowed down the rollout of autonomous vehicles, leading expectations across the auto industry to slow sharply over the last year. Legacy carmakers like Ford and GM have moved away from any clear timeline for the retail sale of self-driving vehicles. Uber suspended its autonomous vehicle research last year after one of its vehicles killed a pedestrian. Waymo has released autonomous taxis, but only in one city, Phoenix, noted for its light traffic and good weather—that is, conditions where edge cases are at a minimum.

Tesla, by contrast, is aiming to release Full Self-Driving for owners worldwide, to potentially be used under a vast array of circumstances. But it is explicitly not guaranteeing that the technology will work under all circumstances on release.

Tesla’s language on that point may be misleading to the layperson. When Musk describes the coming FSD release as “feature-complete,” he’s referring to a list of discrete capabilities, including those already released—highway Autopilot, self-park, and, most recently, the parking lot feature Smart Summon. The additional features still needed to reach “feature complete” status primarily involve mid-speed city driving, such as recognizing stop signs and traffic lights. Musk described this part of the package in October as connecting the highway and parking lot features already released.

But ticking all those feature boxes—features which Tesla has defined for itself—is not the same as guaranteeing that Tesla owners can safely read the newspaper while their car takes them to the grocery store. In October, Musk said that “By feature complete I mean the car is able to drive from one’s house to work, most likely without intervention.”

That “most likely” caveat speaks volumes. As it has with Autopilot, Tesla will continue to officially require drivers to keep their hands on the wheel and monitor their vehicle to help the FSD system deal with unexpected edge cases.

This was foreshadowed in Tesla’s September 26 release of Smart Summon, a feature in the Full Self-Driving suite that’s designed to let a car pick up its driver in parking lots. The feature immediately ran into minor trouble, including some frightening and property-damaging mishaps documented on YouTube. The feature seemed particularly flummoxed by other cars and pedestrians. Consumer Reports described the feature as “glitchy” and “without a lot of obvious benefits for consumers.”

Yet Tesla added $30 million in self-driving revenue to its Q3 revenue on the basis of the Smart Summon release, making a small contribution to the company’s surprising third-quarter profit.

Failing before they succeed

Tesla leadership and supporters, though, have said that releasing software like Smart Summon with rough edges is part of the path to creating an autonomous vehicle that actually works. The most extreme expression of this mindset may have been Musk’s statements in 2016 that media highlighting the present-day risk of crashes involving self-driving technology would actually cost future lives:

“If, in writing some article that’s negative, you effectively dissuade people from using autonomous vehicles, you’re killing people,” the CEO said.

This stance is justified by the fact that, as with all forms of machine learning, autonomous driving algorithms depend on massive amounts of example data. Tesla’s aggressive approach, with all the risk it entails, has given the company a major edge in data gathering.

Teslas on the road today gather data about decisions made by their drivers, and test their autonomy systems in so-called “shadow mode”—recording the systems’ decisions for further review, without ever giving over control of the car. With a fleet of nearly 800,000 autopilot-equipped cars on the road, Tesla has recorded data from, by one analyst’s estimate, 1.8 billion miles of driving. Waymo has far more actual autonomous miles driven than Tesla or any other competitor, but Tesla appears to have more raw real-world data about driving conditions to work with.

With Full Self Driving actually available to owners, Tesla could quickly surpass Waymo’s tally of real-world autonomous miles driven, if it counts miles with a driver present but not intervening. Musk said in October that after its initial release, Full Self Driving would steadily improve to the point that “from a Tesla standpoint, we think the car is safe enough to be driven without supervision.” Presumably, those improvements will be partly enabled by additional data gathered with FSD active in the real world, though Tesla did not reply to clarifying questions on the topic.

Tesla has significant discretion both on technological and financial decisions related to Full Self-Driving. According to the nonprofit Center for Auto Safety, there are currently no federal performance standards or other regulations for advanced driver assistance technologies like FSD, or for fully-autonomous vehicles. So Tesla alone decides when FSD is ready for release. Tesla did not reply to inquiries from Fortune regarding its internal metrics for deciding when FSD will be safe for public use.

The decision of when to recognize held-back revenue is also made by Tesla, in collaboration with its accounting partners. This situation is not unique. “Lots of companies struggle with this very sticky question of what you can recognize as revenue.” says Joe Osha, a Tesla analyst with JMP Securities.

The key question, then, may be simply how much the public trusts Elon Musk and his company to decide when the technology is not a public safety risk, and to remove any financial considerations from that decision.

Jason K. Levine, Executive Director of the Center for Auto Safety, does not believe that trust is warranted. “Based on Tesla’s cavalier attitude up until now when it comes to quality control, the safety of their [systems], or educating consumers regarding the limitations of their technology,” he says, “There is nothing that should lead anyone to believe ‘entirely safe fully self-driving’ vehicle software is being released by Tesla anytime soon. All car manufacturers have a conflict of interest when it comes to putting safety before revenue. Most aren’t quite as publicly obvious about which one they are choosing as Tesla has been.”

Other observers believe Tesla has pure motives for the aggressive FSD timetable. “To be honest, that is less about the financials than it is just their desire to push the envelope in terms of the technology,” says Osha. “I agree with criticisms that they get out over their skis sometimes. But I don’t think that’s motivated by desire to move the gross margin. It’s their DNA.”

And despite cautious notes from Tesla itself, some who have experienced FSD in its current state are already impressed. Matt Joyce, a generally bullish independent Tesla analyst, got a sneak peek of Tesla’s autonomous city driving, and reports that it already works, though not flawlessly. “It was raw, but still super, super impressive. It literally went 15 minutes driving itself,” he said, through a variety of complex, real-world driving tasks on the streets of Fremont.

Even Joyce, though, isn’t confident Tesla will meet its nominal end-of-year target. “I think they are going to surprise people. It’s just not going to be on Elon’s timeline.”

Will Musk apply the brakes or speed ahead? With the end of 2019 rapidly approaching, investors and drivers alike are surely eager to find out.

More must-read stories from Fortune:

—The stock market has hit 19 new highs in 2019 alone. Why?
—The 2020 tax brackets are out. What is your rate?
—How “VSCO Girls” are killing makeup sales
—What is “quantitative easing”—and why is everyone so worked up about it?
—What powered such a great decade for stocks? This formula explains it all
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.