California regulators are threatening to suspend Tesla’s license to sell electric vehicles in the state early next year unless Tesla tones down its marketing strategy for self-driving features after a judge concluded the company, led by Elon Musk, misled consumers about its self-driving features.
The decision, announced late Tuesday, could suspend Tesla sales in the U.S. state of California for 30 days, the main punishment recommended to the state’s Department of Transportation.
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The ruling by Administrative Law Judge Juliet Cox found that Tesla engaged in deceptive marketing practices for years, using the terms “Autopilot” and “fully self-driving” to promote the self-driving technology in many of its cars.
After presiding over five days of public hearings in Oakland, Calif., in July, Cox recommended that Tesla suspend its license to manufacture cars at its Fremont, Calif., factory. But California regulators do not plan to impose that portion of the judge’s proposed penalty.
To avoid suspension of its sales license in California, Tesla has a 90-day grace period to make changes that better communicate the limits of its self-driving technology.
After California regulators filed a lawsuit against Tesla in 2023, the Austin, Texas-based company has already made one significant change by including language clarifying that its fully self-driving package will still require human driver supervision during deployment.
“Tesla can reverse this decision and take simple steps to permanently resolve this issue, something self-driving car companies and other automakers have been able to accomplish,” California Department of Transportation Director Steve Gordon said in a statement.
In a post about Musk’s X service, Tesla dismissed the decision as regulatory overreach.
“This is a ‘consumer protection’ order regarding the use of the term ‘Autopilot’ when no customers have come forward with a problem. Sales in California will continue without interruption,” the company said.
Automakers are already struggling with a global demand slump that began with a backlash over Mr. Musk’s high-profile role overseeing cuts to the U.S. government budget through the Department of Government Efficiency (DOGE), created by President Donald Trump.
Apart from politics, increased competition and an aging vehicle lineup also weighed on Tesla’s sales, but the company has improved the Model Y, the world’s best-selling car, and introduced cheaper versions of the Model Y and Model X.
Tesla’s sales have continued to slump, falling 9% in the first nine months of this year starting in 2024, even as Musk left Washington over a falling out with Trump.
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Despite the slowdown in California and the threat of a sales suspension, Tesla’s stock hit an all-time high of $495.28 in early trading on Wednesday, before falling back below $470. Despite this reversal, Tesla stock is still worth slightly more than it was before Musk’s ill-fated tenure in the Trump administration (a “moderately successful” mission Musk recently said he would never take again).
Tesla’s stock performance against a backdrop of eroding auto sales reflects investors’ increasing focus on Mr. Musk’s efforts to develop artificial intelligence technology to be embedded in humanoid robots and self-driving Tesla vehicles that operate as robotaxis across the United States.
Musk has been promising for years that Tesla’s self-driving technology would make his robotaxi vision a reality, a promise that hasn’t been fulfilled, but the company finally began testing the concept in Austin earlier this year. That said, there was a human supervisor in the car in case something went wrong. In the past few days, Musk has revealed that Tesla has begun testing robotaxis without installing safety monitors in the vehicles.
California regulators are not the first critics to accuse Tesla of overstating the capabilities of its self-driving technology in potentially dangerous ways.
The company has been adamant that information contained in the vehicle’s instruction manual on its website shows that its self-driving technology still requires human supervision, even when it released a video in 2020 of one of its cars purportingly driving itself.
The video was cited as evidence against Tesla in a decision recommending suspension of its California sales license and remained on the company’s website for nearly four years.
Tesla is the subject of various lawsuits alleging that misrepresentations about its self-driving technology lulled people into a false sense of security, leading to fatal accidents.
The company has settled or won several lawsuits, but earlier this year a Miami jury found Tesla partially responsible for a fatal crash in Florida during an Autopilot deployment and ordered the automaker to pay more than $240 million in damages.
