I think Elon is thinking outside the box, like he usually does.
Remember, before Tesla, engineers would have laughed at the idea of building an EV out of laptop batteries. (Yes, i know these are not exactly laptop batteries, but you get the point). The industry standard was using industrial-grade, relativley low capacity but highly reliable components and chemistry, which, of course, also meant range was low, yet prices were high. Then came Elon, and he changed the paradigm.
With self-driving cars, one of the biggest issues is that they are trying to make them work in every single situation, every weather condition. Even Airbus and Boeing don't do that, AFAIK pilots only engage autopilot in good weather, at cruising altitude, for things like hours of flying in a straight line. This Google-approach means, they have to use lasers, high performance computers, etc. which make the car look and cost as much as an aircraft carrier.
I bet Tesla's system will warn and disengage when there is too much fog, too heavy rain or snow, ice, unexpected construction work on the road etc. and only work in "normal" conditions. On the flip side it will be simple and (relativley) inexpensive. A also think it is only intended for the next gen Model S, not the Model E, as it will still be a costly extra. I could be wrong about that, though.
