Tesla’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 accused the company of exaggerating the capabilities of its “Autopilot” and “Full Self-Driving” software and had 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, before paring declines to about 1%. The stock had closed Tuesday at a record high and was up 21% for the year. Tesla didn’t 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. Tesla can avoid the DMV suspension if it files a statement that it has stopped using or describes steps it will take to cease using the Autopilot name to describe technology that does not meet certain industry standards.
“This was a ‘consumer protection’ order about the use of the term ‘Autopilot’ in a case where not one single customer came forward to say there’s a problem. Sales in California will continue uninterrupted,” Tesla said in a statement that didn’t provide more details.
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.
In her written decision, the administrative law 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. He said in a statement the company can take “simple steps” to resolve the issue permanently.
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