Long story short, it's both hardware and software holding things back. On the hardware side, there is a lot going on with solid state radar and lidar sensors improving by the minute, while prices are down a factor of 10-100 from even 5 years ago. There are now sensors available for research and product development that in 5 years time will allow a semi high-end production car to robustly drive all traffic conditions on a highway.
Car makers (and suppliers) have to learn how to make software to make optimal use of the existing hardware, but they've got a long way to go, still. Every major player nowadays has a research center in Palo Alto or whereabouts, seemingly trying to learn how to do this via osmosis, but it will take some time until they really understand how to keep pace with information technology, and how to bring it into their mammuth manufacturing and legal frameworks. Nevermind the necessary mindset to pull it off.