Tesla Faces California Sales Halt Unless It Changes Marketing
California is both the company’s biggest sales market in the US and home to one of Tesla’s largest factories, making even a temporary disruption very costly.
Tesla Inc.’s sales in California are poised to be suspended for 30 days if it doesn’t change its marketing practices that allegedly mislead consumers about its driver-assistance technology, the state’s motor vehicles department said.
The agency said Tuesday the suspension won’t take effect for 90 days to give the company time to appeal or come into compliance. The California Department of Motor Vehicles has accused the company of exaggerating the capabilities of its “Autopilot” and “Full Self-Driving” software and asked an administrative judge to weigh whether a suspension is warranted.
Tesla shares fell as much as 2.2% on the news in postmarket trading and were down 1% as of 6:53 p.m. The stock had closed Tuesday at a record high and was up 21% for the year. Tesla did not immediately respond to a request for comment.
A suspension of Tesla’s sales license would be a major blow to the Austin, Texas-based company. California, the most populous state, is both the company’s biggest sales market in the US and home to one of Tesla’s largest factories, making even a temporary disruption potentially very costly. The move by California could have nationwide implications for Tesla’s efforts to expand its businesses selling advanced technology in its vehicles, said Haris Khurshid, chief investment officer at Karobaar Capital.
“If regulators slow Tesla’s autonomy claims there, it directly affects how fast the AI story turns into real revenue,” Khurshid said. “Tesla can still win long term, but rulings like this widen the gap between hype and deployment,” Haris Khurshid said.
Lawyers for Tesla sought to fend off the DMV’s disciplinary action by arguing that its advertising is protected free speech under the First Amendment of the US Constitution. The attorneys also accused the regulator of taking the marketing statements out of context, and failing to account for Tesla’s warnings and disclosures about the driver-assistance systems.
The DMV said the administrative judge also recommended suspending Tesla’s manufacturing license for 30 days, but the regulator stayed that order.
“We’re really asking Tesla to do their job, as they’ve done in other markets, to properly brand these vehicles,” Steve Gordon, director of the California Department of Motor Vehicles, told reporters.
