Currently being tested by Swedish firm Semcon, it is hoped the concept will allow the vehicle to communicate with other road users.
The vehicle is equipped with a set of clever sensors that can detect when pedestrians are in the surrounding area.
It then sends out the smile signal from a display in the front grille indicating that the car will come to a stop at a safe distance.
This will allow pedestrians to cross the road, while also helping to build trust between road users and self-driving vehicles.
Explaining the thinking behind its idea, Semcon cited a survey carried out by research firm Inizio which found that eight of 10 pedestrians seek eye contact with drivers before crossing the road.
It says that with the rise of driverless technology, it will be essential for developers to come up with new ways for vehicles to interact with other road users.
Semcon compares the development to the way in which cars indicate when they are changing lanes or turning a corner.
The firm says that there will need to be a similar standard in the way that self-driving cars communicate with pedestrians.
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Karin Eklund, of Semcon, said: “A lot of the discussions regarding self-driving cars are about the car’s technology.
“But how these vehicles will interact with unprotected road users is just as important.
“Self-driving cars need to communicate in a way that feels familiar and creates trust.”
This is not the only way that attempts are being made to improve interaction between self-driving cars and the world around them.
A start-up business called Drive.ai is also working on a system that allows autonomous vehicles to communicate using emojis.
The cars carry digital screens that display signs such as smileys and winks, helping to improve trust between human road users and self-driving vehicles.
Having developed the smiling car concept, Semcon is now focusing on ways to refine the idea.
It is looking at methods of incorporating eye-tracking technology and special lasers into the smiling vehicle.
These innovations would make it possible for the car to detect minute movements of pedestrians’ head and eyes.