Robotaxis Enter the Fast Lane

Robotaxis—or autonomous, on-demand ride-hailing vehicles—are becoming increasingly visible in a few large cities. Several operators are already running fully driverless services around the clock in select markets, thanks to advances in artificial intelligence, reductions in hardware costs and improvements in regulatory clarity.

As a result, investors are shifting their focus beyond whether robotaxis can work, and zeroing in on which players can scale the technology most efficiently and profitably. 

Morgan Stanley Research estimates that the total addressable market for robotaxis will reach roughly US$1 trillion by 2040 across mobility services, vehicles, software and adjacent industries. Analysts expect the industry to reach break-even by 2028 and expand significantly over the following years, with approximately 2.5 million robotaxis in service worldwide by 2035. 

“The journey is just beginning and substantial hurdles remain, but we are at an inflection point,” says Tim Hsiao, Morgan Stanley’s Greater China Auto & Shared Mobility Equity Research Analyst. “From 2026, the race stops being about proving it can be done and becomes about who can move the furthest, the fastest and the cheapest.”  

The Next Phase of Robotaxi Growth 

Several catalysts are shaping the next phase of robotaxi adoption:

• Expansion of driverless services into new cities
• Lower hardware and operating costs
• Deeper partnerships between autonomous technology providers and ride-hailing platforms
• Continued regulatory progress in key markets as competition intensifies globally

Over the decade, falling hardware costs and higher vehicle usage could make robotaxis as cost-effective for operators and consumers as traditional ride-hailing services.

At the same time, advances in AI models and growing data are likely to strengthen the position of early leaders, making it more difficult for new competitors to enter the market. 

“The robotaxi industry is a fast-evolving vertical of embodied AI, in which cross-sector collaboration is accelerating both innovation and investment opportunities,” Hsiao says. 

Lower Costs Could Improve Profitability

Morgan Stanley Research projects that the costs of running a robotaxi will fall by about 20% over the next three years. Lower costs could help move the industry toward profitability and make robotaxis more competitive with traditional taxi and shared mobilities services.

“As operating costs decline and the technology matures, robotaxi operators may be able to offer more affordable rides and generate modest profits later this decade,” explains Andrew Percoco, Morgan Stanley’s North America Autos and Shared Mobility Equity Research Analyst. 

By 2028, a typical robotaxi could earn roughly 10% profit on each ride, closer to traditional taxi and shared mobilities margins.

As operating costs fall, robotaxis could also become a viable alternative to car ownership. “Once scaled, these fleets can meaningfully alter the cost structure of the current mobility industry, unlocking vehicle-level net margins north of 30% globally and above 40% in developed markets,” Percoco says. 

Global Expansion Gains Momentum

Although the United States and China are leading in the expansion of robotaxis, momentum is building in Europe, the Middle East and Southeast Asia.

“The U.S. robotaxi market is meaningfully more mature than most market participants appreciated two years ago,” says Brian Nowak, Morgan Stanley’s Head of U.S. Internet Equity Research. “Robotaxis across major U.S. cities now represent a genuine commercial footprint, not a pilot program.” 

Meanwhile, China is the market where robotaxi deployment has advanced the fastest, combining the industry's largest operating scale with some of the strongest unit economics. Chinese players are reducing vehicle production costs, while expanding utilization and market access through partnerships with local ride-sharing leaders. 

Morgan Stanley Research estimates that the U.S. and China are likely to account for 70% for the global robotaxi fleet by 2035, while Europe, the Middle East and the broader Asian region capturing the remaining 30% and playing an increasingly key role in shaping the industry’s long-term growth. 

“The market beyond the U.S. and China is large enough to accommodate multiple local winners,” Hsiao says. 

Speed Bumps Remain

Despite the strong long-term outlook, challenges for robotaxi implementation still exist.

“Regulatory fragmentation, consumer skepticism about safety, disappointing unit economics and high upfront R&D requirements still keep execution risk elevated,” Percoco says. 

Regulatory progress may be uneven across regions, particularly outside the U.S. and China, potentially delaying deployment of robotaxi services. Also, safety concerns or high-profile incidents could slow consumer adoption and lead to stricter regulations.

The path to profitability may take longer than expected if demand is slow or costs remain high. Expanding robotaxi fleets requires significant investment which could put pressure on near-term returns.

“Global expansion of this technological system could be more complex than anticipated, as each major country has different infrastructure, policy and consumer behavior,” Percoco says, “Navigating these differences could mean companies may face challenges, may require a tailored approach in each market, slowing the overall pace of growth.”