It was more than a year ago when the Department of Motor Vehicles in California accused Tesla (NASDAQ: TSLA) of engaging in false advertising regarding its driver-assistance technology. In two complaints filed on July 28, 2022, the agency alleged that Tesla misled customers by asserting in advertisements that vehicles equipped with its Autopilot and Full Self-Driving programs possessed autonomous capabilities.
Should the complaints prove successful with the state’s Office of Administrative Hearings, there is the potential for Tesla’s licenses to manufacture and sell vehicles in California to be suspended or revoked. The agency contends that Tesla disseminated statements that were inaccurate or misleading, not grounded in facts, in its advertising of vehicles as being equipped or potentially equipped with advanced driver assistance system (ADAS) features.
In a separate action, a California bill was immediately passed by the Senate the following month, targeting Tesla’s Full Self-Driving program. The bill, sponsored by Senate Transportation Committee Chair Lena Gonzalez (D-Long Beach), addressed the issue of the electric vehicle maker marketing the vehicle as “full self-driving,” implying in plain English that the car can be completely autonomous, when it can not.
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In a 2018 survey, the AAA Foundation for Traffic and Safety found that 40% of people who purchased the driver-assist option, such as Autopilot, the lower-tier version of Full Self-Driving, assumed that the car can indeed drive itself. There is currently no car in the market that can fully self-drive, but only Tesla is marketing this way.
“Are we just going to wait for another person to be killed in California?” Gonzalez said, alluding to instances of deaths linked to Tesla’s Autopilot. It is still unknown how many incidents can be connected to Full Self-Driving.
The bill became a law in December 2022, banning Tesla from advertising its vehicles as Full Self-Driving.
But the legal trouble concerning this does not end there for Tesla. Pertaining to the complaints filed by the California motor vehicle agency more than a year ago, an order was released for a trial-setting conference to be held on December 4.
Tesla has been losing ground in California, marked by how the automaker back in June 2022 cut almost 200 workers on its Autopilot team as it closed its facility in San Mateo, California.
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Another automaker, Mercedes-Benz, secured in June this year the California Department of Motor Vehicles’ approval for its automated driving system, beating Tesla in the race. The approval grants Mercedes-Benz the distinction of being the first carmaker authorized to sell or lease vehicles equipped with an automated driving system to the public in California.
Losing California licenses is set to hit Tesla hard, which accounts 16% of their global deliveries last year from the state. This would come at a time when the automaker is logging in its lowest operating margin since 2020, attributed to a series of price reductions in key markets.
Despite this, Musk emphasized the importance of reducing prices to counteract the pressure of rising interest rates on consumer affordability, stating, “I just can’t emphasize how important cost is. [A car is] not an optional thing for most people; it is a necessary thing. We have to make our product more affordable so people can buy it.”
The carmaker is in constant clashes with regulators, particularly around the so-called full self-driving feature. Most recently, U.S. auto safety regulators initiated a special investigation into a tragic accident that occurred in California, involving a 2018 Tesla Model 3. The incident is suspected of being related to the use of advanced driver assistance systems.
However, Musk made a comment on the regulatory scene in the United States during the earnings call, saying “The only reason Tesla can deploy FSD in the US, and not other counties, is because other countries have laws and rules for this, and the US does not.”
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
