Tesla (TSLA) might lose its right to sell cars in California amid false advertising lawsuit

Tesla (TSLA) might lose its license to sell cars in California amid false advertising lawsuit brought by the California DMV, which is looking to suspend Tesla’s right to sell cars in the US’ biggest EV market for 30 days.

The California DMV has been in a legal dispute with Tesla for years over the automaker’s advertising of its ‘Autopilot’ and ‘Full Self-Driving Capability’ advanced driver assistance (ADAS) systems.

The agency claims that Tesla is misrepresenting the capacity of its ADAS through the names themselves and how the company and the CEO markets them.

The California DMV started investigating Tesla for misleading advertising in 2021. We find out that the company was saying different things to the public than it was saying to the DMV. The DMV then sent an official inquiry to Tesla in 2022, asking for it to respond to the claim that it was creating incorrect perceptions about the capabilities of its system.

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The DMV has issues with the names of the features themselves, but it also brought up controversial statements from Tesla, such as:

“The system is designed to be able to conduct short and long-distance trips with no action required by the person in the driver’s seat.”

And:

“From Home – All you will need to do is get in and tell your car where to go. If you don’t say anything, your car will look at your calendar and take you there as the assumed destination. Your Tesla will figure out the optimal route, navigating urban streets, complex intersections and freeways. To your Destination -When you arrive at your destination, simply step out at the entrance and your car will enter park seek mode, automatically search for a spot and park itself. A tap on your phone summons it back to you.”

Tesla’s response included a claim that it has been allowed to lie about FSD for so long that it should get to keep going, which wasn’t persuasive enough for the courts, as the case was allowed to move to trial last year.

The automaker is also arguing that its warnings to drivers to stay attentive at all times are enough to counter any misleading statements.

Now, things are heating up.

The court is holding a 5-day hearing on the case all week and the DMV is now trying to get Tesla’s dealer license suspended for a month:

The Department seeks an ordersuspending Respondent’s manufacturer and dealer licenses for not less than thirty (30) days, and seeks an order that Respondent pay restitution under Government Code § 11519.1, subdivision (a), in an amount to be determined in a subsequent hearing.

This would have devastating effect on Tesla’s performance this quarter as the automaker is expected to deliver a record number of cars in the US due to the imminent end of the federal tax credit and California is by far Tesla’s biggest market in the US.

Melanie Rosario, Commander–Sergeant, DMV Valley Area Command, is set to testif “regarding her investigations and findings regarding Tesla’s false and misleading statements in advertising its vehicles equipped with ADAS features” at the hearing this week.

The California DMV will also call Bryant Walker Smith to testify remotely as an expert witness. He is “a professor of law at the University of South Carolina, a voting member of the Society of Automotive Engineers’ (“SAE’s”) On-Road Automated Driving Standards Committee, and has been involved in industry and government use of the language of driving automation for almost 14 years.3 Professor Smith will testify regarding the language of driving automation.”

Electrek’s Take

This would be extremely bad for Tesla.

Tesla’s sales in the US in Q3 2025 is going to be a boon to a terrible year of declining sales. The end of the federal tax credit starting in Q4 is pulling forward a ton of demand into Q3.

A lot of that demand was going to come from California, which accounts for about a third of EV sales in the US.

It is Tesla’s biggest market in the US and where it has most capacity to deliver vehicles.

If its license gets suspended during this quarter, it will create a logistical nightmare where Tesla would have to try to deliver tens of thousands of vehicles out of state.

While this saddens me, as it will result in fewer EVs on the road, it might be the wake up call that Tesla needs to finally take seriously the giant liability that Elon Musk created for the company through the many lies about self-driving capabilities inside Tesla vehicles.

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