This is a great post, but I disagree about some things.
First of all, Google and Urmson are talking their book. They have made choices about how to do things, and have a serious business (not technology) problem. Their problem is that many of their autonomous car efforts have been leapfrogged by actual automotive suppliers, with more experience at real time computing than Google has.
Why would any car company buy an autonomous system from Google, when they could buy it from Bosch, Delphi, Mobileye-- all companies with proven histories as automotive suppliers, who know how to work within the supply chain, have massive experience with real time software development?
So Google has to somehow change the game, which is why they a) make it seem really hard, and b) have decided to build their own cars, going the full autonomous route (which, to be fair, the companies I mentioned above have so far shied away from).
Secondly, in regard to regulators, there is certainly some regulatory peril here. However, it is pretty clear that, as of now, the features Tesla has proposed are nothing more than an enhanced form of cruise control. The driver is still responsible for the car. This is clearly legal in all states, with the possible exception of New York (where a hand has to be on the wheel).
I have good reason to believe this a significant reason for the delay. Ever noticed that in all the slick demos Tesla really didn't demo the interface? How does the car know you're actually paying attention? The truth is that Google is at least partially right. The better the driver assistance features get the worse drivers will be. See the video below for Google's argument against what Tesla is doing.
I wouldn't be surprised if there wasn't serious discussions ongoing with regulators about what Tesla had planned. If they can't convince the regulators that what they're giving us is safe then there's a very good chance that they'll put rules in place. Rules that very well might force Tesla to take the feature away or make it not as nice to use. So I'm guessing they're probably taking their time to make sure they don't give and then take it back. I'm sure we all remember how people reacted to the air suspension height being raised. I'm sure the reaction to such a change would be even worse.
Someone will again point out that other cars have these features. I'm just going to point out that Elon has a different philosophy about how this feature works, see his comments about keeping your hand on the steering wheel.
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Also, I should point out that this fear of the steering portion of autopilot causing all these accidents seems rather odd to me. TACC is just as likely, maybe more likely, to cause an accident by inappropriately accelerating or braking as the car is to steering into something. Frankly, not steering into objects, given a camera and radar system, seems fairly easy to me.
It might not hold the center of the lane as smoothly as we would like, or it might disengage more often than we would like, but I suspect that the likelihood of it causing some sort of accident is rather low.