Tesla presses Europe for FSD approval as Sweden and Germany split on rollout

Tesla is ramping up pressure on European regulators to approve its Full Self-Driving software, but the high-stakes campaign has exposed deep divisions within the bloc. While Germany has thrown its weight behind a continent-wide rollout of the driver-assist system, Sweden has emerged as a key opponent, creating a significant roadblock for Elon Musk’s autonomous driving ambitions.

The regulatory showdown comes at a critical juncture for the carmaker's global strategy. Tesla is currently producing more than 464,000 vehicles and delivering over 486,000 cars a quarter. A vast number of these vehicles are already on European roads, packed with the expensive sensors and onboard computers required for Full Self-Driving (FSD). Currently, however, European regulations keep these cars heavily restricted.

Securing EU-wide approval would allow Tesla to unlock and monetise this massive, pre-installed fleet through high-margin software subscriptions. Without it, these vehicles remain hardware-rich but software under-monetised, leaving a vital source of recurring revenue out of reach while Tesla prepares for a major robotaxi push in the United States.

The compute bottleneck

At the same time, Musk is confronting severe technical bottlenecks behind the scenes. The Tesla chief executive has publicly backed warnings from his internal AI team that an acute shortage of raw computing power is squeezing progress on both autonomous driving and its wider robotics projects.

To break this compute squeeze, Tesla is accelerating its plans to build its own custom AI silicon, aiming to reduce its reliance on general-purpose hardware. The company is currently working with manufacturing partner Terafab on its next-generation AI5 and AI6 chips, which are scheduled to debut between 2027 and 2028.

By designing its own chips, Tesla hopes to control the entire technology stack, from the neural networks running in its data centres to the hardware operating inside its cars.

Financial stakes

However, this dual push highlights the core financial risk hanging over Tesla. The company is pouring billions of dollars into AI development and custom chip fabrication, a capital-intensive strategy that has put pressure on its free cash flow.

For this heavy capital expenditure to translate into profitability, Tesla needs to rapidly deploy its autonomous software globally. If European regulators delay the voting process or if member states like Sweden successfully block a unified rollout, the gap between Tesla's massive spending and its actual software revenues will grow wider, testing the patience of investors who have bought into Musk's self-driving promise.