A nonlinear observer for lateral velocity of an automotive vehicle is extended for robustness with respect to unknown road surface conditions. The observer uses a friction model parametrized with the maximum road-tire friction coefficient, and an adaptive parameter update law is designed for estimation of this coefficient. The adaptive nonlinear observer is proven to be uniformly globally asymptotically stable under a uniform 5-persistency-of-excitation condition, and a set of additional technical assumptions, using results related to Matrosov's theorem. The adaptive observer is validated using experimental data from a car