Tesla’s California Sales License Faces 30-Day Suspension Over Misleading Marketing Claims
(Bloomberg/Madlin Mekelburg, Dana Hull, and Kara Carlson) — Tesla Inc. is on the brink of a 30-day suspension of its car sales in California due to purportedly deceptive marketing tactics regarding the automated driving features of its vehicles.
On Tuesday, the California Department of Motor Vehicles (DMV) announced that the suspension would be deferred for 90 days, allowing Tesla the opportunity to either appeal the decision or rectify the alleged discrepancies.
The DMV has accused Tesla of overstating the capabilities of its features marketed as Autopilot and Full Self-Driving (FSD), and has solicited an administrative judge to determine if a suspension is justified.
“Our expectation is for Tesla to fulfill their responsibilities, as they have in other jurisdictions, by accurately branding these vehicles,” stated Steve Gordon, director of the California DMV. He emphasized that the company could undertake “simple steps” to achieve a permanent solution.
The potential suspension of Tesla’s sales license would strike a significant blow to the company, headquartered in Austin.
A suspension in California—its largest market—would have noteworthy financial implications, particularly as the state leads the nation in electric vehicle adoption.
As of September 2023, Tesla had registered over 135,000 new cars in California, which accounts for approximately 11% of its global deliveries during the same period.
Tesla’s legal representatives contended that the DMV’s actions infringe upon the company’s rights to free speech under the First Amendment.
They further claimed that regulatory authorities had misinterpreted marketing statements, neglecting to consider Tesla’s existing warnings and disclosures about its driver-assistance systems.
“This was a ‘consumer protection’ order addressing the term ‘Autopilot’ in a context where not a single customer has come forth to report an issue. Sales in California will proceed without interruption,” Tesla asserted in a statement devoid of additional specifics.
The judge’s written decision also suggested a 30-day suspension of Tesla’s manufacturing license; however, this order was subsequently put on hold.
Tesla’s substantial manufacturing facility located in the San Francisco Bay area is capable of producing over 650,000 vehicles annually, making it the second-largest plant following its factory in Shanghai.
In after-hours trading on Tuesday, Tesla shares dropped as much as 2.2%, with a further decline of up to 0.6% before the market opened on Wednesday.
Prolonged Scrutiny
Tesla has been under extensive examination by federal prosecutors, securities regulators, and the National Highway Traffic Safety Administration (NHTSA).
Additionally, the company faces various lawsuits from consumers and investors concerning the marketing, utilization, and performance of its driver-assistance technologies. Both Autopilot and FSD require active human supervision, thereby not rendering Tesla vehicles fully autonomous.
This year, Tesla recalled 2 million vehicles following NHTSA’s determination that Autopilot inadequately mitigated the risk of driver misuse.
The agency is currently investigating the efficacy of a software update Tesla implemented to address safety concerns, alongside probing FSD for its involvement in traffic violations and multiple crashes, one of which resulted in a fatality.
Tesla suffered its first notable court loss related to Autopilot in August, when a jury in Miami ordered the company to pay $243 million after determining the system bore partial responsibility for a fatal incident.
Despite these challenges, Chief Executive Officer Elon Musk has promoted Teslas as the safest vehicles ever manufactured. He has increasingly pledged the company’s future to the advancement of autonomous-driving technology, confirming this week that testing has commenced for its vehicles to navigate Austin streets without occupants.
California’s Accusation
The state alleges that during 2021 and 2022, Tesla made false or misleading claims, asserting that its vehicles would “be able to conduct short and long-distance trips with no action required in the driver’s seat.”
An amended complaint submitted by the DMV in November 2023 stated that Tesla’s driver-assist technology “could not, at the time of those advertisements, nor can it now, operate as autonomous vehicles.”
The agency posited that such actions warranted the suspension or revocation of Tesla’s dealer and manufacturing licenses in California, thus commencing a protracted regulatory process within the California Office of Administrative Hearings. A five-day hearing took place in July.
When a regulatory body like the DMV seeks to discipline a licensed entity, approval from an administrative law judge is typically required.
While these proceedings are not equivalent to comprehensive civil or criminal trials in state or federal courts, judges evaluate evidence and receive submissions from both parties before rendering a decision.
Though it is uncommon for the DMV to initiate substantial action against manufacturers, it is not without precedent; in 2023, the agency revoked the license of General Motors Co.’s driverless car subsidiary, Cruise, following an incident in San Francisco where a vehicle struck and dragged a pedestrian.
Economic Implications
Tesla has cautioned that any ruling restricting its manufacturing or sales capabilities could yield significant economic repercussions for the state. The company employs over 33,000 individuals across its production facility and its 60 retail establishments.
The actions taken by California may also have far-reaching implications for Tesla’s ambition to broaden its portfolio of advanced technologies within its vehicles, according to Haris Khurshid, chief investment officer at Karobaar Capital.
“If regulators curb Tesla’s autonomy claims, it will directly impede the conversion of AI concepts into tangible revenue,” Khurshid articulated. “While Tesla may still succeed in the long run, such adjudications exacerbate the gulf between perception and reality.”
Musk, recognized as the world’s wealthiest individual, has historically maintained a contentious relationship with California. He has clashed with Democratic state leaders over governance issues, taxation, and other concerns before relocating Tesla’s headquarters to Texas in 2021.
The California DMV case is documented as In the Matter of the First Amended Accusation Against: TESLA, INC, 21-02188, Department of Motor Vehicles, State of California.
Source link: Mercurynews.com.
