As the AV industry pushes for top-down federal regulation, several states are becoming home bases for autonomous technology and next-generation mobility. By Daniel Sabourin and Mark Fanelli
In April, a federal bill was introduced that would expand the National Highway Traffic Safety Administration’s (NHTSA) regulatory authority to relax limits on the number of road vehicles companies can build that don’t comply with human-centric safety requirements. This congressional action marks the sixth consecutive year that a federal autonomous vehicle (AV) bill has been proposed that has not reached the president’s desk.
Under current NHTSA regulations, automakers must equip vehicles with features designed to be operated by humans, such as a steering wheel, accelerator pedal, and brake pedal. However, these common features are not necessary for AVs with Level 4 capabilities. In these circumstances, NHTSA can exempt 2,500 vehicles per manufacturer per year from compliance with certain safety regulations. To date, NHTSA has not granted any AV-related exemptions, forcing manufacturers to adhere to standards that date back to the 1960s. The proposed bill would allow NHTSA to exempt 15,000 AVs per manufacturer for an initial three-year period from regulations that are preventing mass adoption of AV technology. Beyond the three-year period, NHTSA would have the authority to exempt 80,000 AVs per manufacturer per year if the technology is “at least as safe as a human-driven vehicle.”
With Congressional action remaining uncertain, AV stakeholders should look to states that encourage self-driving technology, such as Michigan, California, and Arizona, which are some of the most AV-friendly jurisdictions with progressive legal frameworks, AV testing sites, and highly educated workforces.
History of Federal Regulation of AVs
Since 2012, the federal government has issued voluntary guidelines to allow states to create AV statutory frameworks that incentivize autonomous driving activity based on risk tolerance. This state-focused approach has led 40 states and Washington, DC, to enact various levels of AV legislation allowing off-road testing, fully autonomous driving on public roads, on-demand transportation services, and more.
Mcity, Michigan, is the world’s first purpose-built facility for testing connected and autonomous vehicles and technologies under controlled, realistic conditions.
More recently, the U.S. Department of Transportation (DOT) expanded its voluntary AV guidance, which also serves as a blueprint for a future federal AV framework known as Ensuring U.S. Leadership in Autonomous Technology: Autonomous Vehicles 4.0 (AV Policy 4.0). AV Policy 4.0 placed an increased focus on passenger safety, modernizing AV architecture, and maintaining technology neutrality. AV Policy 4.0 also updated DOT’s guidance on AV privacy, cybersecurity, patents, and vehicle accessibility. Building on AV Policy 4.0’s focus on safety, in January 2021, Secretary Pete Buttigieg issued a standing order requiring all state transportation departments and AV officials to submit accident reports and information about accidents to NHTSA so that the federal government can better study the risks of autonomous driving.
Current Federal Incentives for AV Technology
AV Policy 4.0 encourages AV research and development by providing eligible businesses with a federal income tax credit of up to 20% for eligible corporate expenditures related to autonomous driving technology. Following guidance from the U.S. Treasury Department and Internal Revenue Service, AV Policy 4.0 provides for the immediate expenses of research and development activities that are experimental in nature, the expenses of eligible AV business property purchased between September 27, 2017 and January 1, 2023, the expenses of purchasing or leasing AV manufacturing equipment, including computer hardware and software, and up to $5,000 in AV start-up expenses in the first year of business (the $5,000 deduction is reduced by the amount of start-up or organizational expenses in excess of $50,000, with the remaining expenses deductible over 180 months). If an AV company’s operating expenses exceed its revenues for the current tax year, it may carry forward its net operating losses to offset 80% of its taxable income in future years.
Michigan, California and Arizona lead the way as most AV-friendly states
In the absence of federal AV regulation, Michigan, California, and Arizona have led the way as some of the most advanced and innovative hubs for autonomous technology development. While each state has taken a different approach to AV regulation, the link between their systems is based on fostering an environment that allows AV technology to be integrated into the lives of the general public. This symbiosis is essential to enable mass adoption of AV technology by the general public.
Michigan
In 2013, Michigan enacted Michigan Motor Vehicle Code § 257.665, which was the most progressive AV legal framework in the United States at the time. § 257.665 created a balanced, industry-friendly, and safety-focused regulatory scheme that enabled Michigan to become a leader in AV innovation and connected vehicles. Michigan was the first state to extend manufacturer license plates (M-plates) for AV testing to companies outside of traditional OEMs. Michigan’s approach was an immediate success, and soon more advanced legislation was needed to keep up with the technology.
With Congressional action remaining uncertain, AV stakeholders will need to look to states that encourage self-driving technology.
In 2016, Michigan enacted Section 257.665b, or the Safe Autonomous Vehicles (SAVE) Project. Project SAVE allows qualified autonomous vehicle parties to develop a fleet of autonomous vehicles that provide on-demand transportation to the public within a defined geographic boundary. Michigan is also home to one of the premier higher education institutions, the University of Michigan, which has been a talent hub for the Big Three in the United States for over a century. The university is also home to Mcity, a fully autonomous proving ground where autonomous vehicle companies can test their technology in a closed-loop environment. Currently, over 60 autonomous vehicle companies are testing their products at Mcity.
More recently, Michigan announced it will build a first-of-its-kind connected autonomous highway between Detroit and Ann Arbor in January 2022. This AV highway will facilitate faster and safer autonomous traffic at all levels and serve as a blueprint for America’s future smart roads.
California
In 2012, California became the third state to enact legislation allowing autonomous vehicles to operate on state highways, directing the California Department of Transportation (DMV) to promulgate autonomous vehicle-specific safety regulations. In response to this legislative mandate, the DMV launched the Autonomous Vehicle Testing Program in 2014, with strict test driver requirements. To date, approximately 60 autonomous vehicle participants hold test permits under this program. In 2018, the DMV established the Autonomous Vehicle Tester Unmanned Program, which has even stricter requirements. Currently, only four autonomous vehicle participants hold Autonomous Vehicle Tester Unmanned Program permits. In the near future, several autonomous vehicle shared (SAV) projects are underway in California, including the Livermore Amador Valley Transportation Authority SAV project, which began last June and provides environmentally friendly transportation between San Francisco metropolitan bus routes and the Bay Area Rapid Transit Authority.
Waymo has the majority of self-driving miles on California roads.
Arizona
Arizona, through a series of Governor’s Executive Orders issued between 2015 and 2018, reduced regulatory barriers for AV stakeholders to conduct semi- and fully autonomous testing in the state. Notably, in 2018, Arizona eliminated the requirement that AVs have a safety driver on board, as long as the autonomous system is remotely monitored. Additionally, Arizona established the Autonomous Driving Consortium Laboratory, which aims to foster innovation and collaboration by building research, development, testing, and evaluation capabilities for AV systems. Finally, through a 2018 Executive Order, Arizona authorized the testing and operation of for-profit AV on-demand transportation services. Currently, there are over 600 AVs in Arizona, operated by more than a dozen AV stakeholders.
The future of autonomous driving
Following the lead of Michigan, California, and Arizona, other states have amended their statutory frameworks to encourage private investment and impose limited restrictions on AV research and development. These states include Texas, Nevada, Colorado, and Florida. Notably, Miami-Dade County in Florida will offer 1,000 fully autonomous taxi licenses by 2026 to AV manufacturers that meet certain testing, mapping, and safety requirements. Supported by the ingenuity of state and local leaders, the US AV sector should continue to develop and expand, with federal legislation on the (hopefully not too distant) horizon.
About the authors: Daniel Sabourin and Mark Fanelli are attorneys in the Automotive & Mobility Industry Group at Morgan, Lewis & Bockius LLP.
