Mercedes-Benz's new self-driving tech is turning up the heat on Tesla at the worst possible time

• Mercedes-Benz announced it's bringing Level 3 driving automation to US roads in 2023.
• Its Drive Pilot feature allows drivers to not pay attention to the road in certain situations.
• The announcement comes during a rough patch for Tesla, which has placed huge emphasis on its driver-assistance technology.

For years, Elon Musk has said driverless Teslas are right around the corner. He's even claimed that Tesla owners would someday be able to generate passive income by deploying their cars as autonomous robotaxis and that the company will be "worth basically zero" if it can't crack self-driving tech.

But it was Mercedes-Benz — not Tesla — that notched an important milestone in the world of automated driving last month when it received certification in Nevada to bring Level 3 driving automation to US roads, making it the first carmaker to do so.

The announcement comes as Tesla struggles with increasing competition and softening demand for its cars.

Drive Pilot is a "really big deal," Bryant Walker-Smith, a law professor at the University of South Carolina who specializes in autonomous vehicles, told Insider. The most advanced driving software from other automakers — including Tesla — remains at Level 2, per industry standards, requiring drivers to pay full attention.

Mercedes' system will, for the first time, give drivers more leeway to look away from the road while their car takes control.

"Everything else that's been done and commercially available has always required a human to pay attention. And Mercedes is saying for extended periods you don't have to do that," Smith said. "That upends a century plus of motor vehicle development."

Tesla, Ford, and most every other automaker offer some form of Level 2 driver-assistance software. Those systems may steer, brake, and accelerate automatically (typically on the highway) but ultimately they're supporting a driver who is in full control and watching the road.

But at one level higher, Mercedes' Drive Pilot allows a driver's attention to wander to other tasks in certain situations. It uses maps, cameras, LiDAR, radar, microphones (to listen for emergency vehicles), and road-wetness sensors to keep a car in its lane, maintain a safe distance from other vehicles, and take evasive maneuvers if necessary, Mercedes says. It's not autonomous (there are still Levels 4 and 5), and drivers need to take the wheel if prompted.

There are some caveats: When Drive Pilot hits roads later in 2023, it will only work on certain freeways in Nevada and only at speeds under 40 mph. So basically, in traffic jams. But Mercedes plans to expand the feature to California soon.

Companies like Waymo and Cruise operate fleets of driverless taxis in some cities, but that sort of technology isn't available to regular car buyers.

"This opens a new chapter in automation in the US because we have people who are not trained as test drivers being told it's okay to not look at the road," Philip Koopman, an expert in autonomous driving at Carnegie Mellon University, told Insider. The announcement also raises thorny questions about when Mercedes would be liable if the system were involved in a crash, he said.

Mercedes could be liable for incidents caused by product defects in both conventional and automated vehicles, a company spokesperson said.

The milestone in one of Tesla's key focus areas comes at a difficult time for the electric-car company.

Tesla's stock plummeted around 70% last year amid Musk's takeover of Twitter and concerns that once-robust demand for its cars was faltering. The company recently slashed prices for its most popular models in an effort to boost sales. Its so-called Full Self-Driving (FSD) system still isn't self-driving even after years of updates. And both FSD and Autopilot, Tesla's more basic driver-assist feature, have come under intense government scrutiny.

Still, Drive Pilot isn't sparking a revolution in the way people drive — or don't — just yet. Both Koopman and Walker-Smith are waiting to see if it graduates from a niche feature to broad availability.