It is Tuesday, February 24th, 2026 and we were looking at a
story today that broke yesterday involving Tesla and the
California DMV. Yeah, and it's, well, it's a bit
of a puzzle when you actually map out the timeline of the last
week. Right, because at first glance,
if you just read the headlines, you'd think it looks like
standard corporate litigation. You know, a company suing a
regulator. Which happens every day, yeah,
but the strategy here is totally inverted.
Usually you fight a legal battle to avoid a penalty, but here the
penalty was already off the table.
Exactly. So let's set the scene for you.
The headline is that Tesla filed A lawsuit against the California
Department of Motor Vehicles yesterday, Monday.
They are demanding that a state court overturned A ruling that
labeled them a false advertiser. Which is a very heavy label.
That's not just a passing criticism from a regulator.
That is a formal legal classification, right?
But here's the part I'm really struggling to wrap my head
around. The DMV had previously
threatened to suspend Tesla's license to sell cars in
California if they didn't fix their marketing language
regarding Full Self Driving and Autopilot.
But they did fix it. They did.
As of last week, February 17th, the DMV, we effectively said OK,
you change the language, you are good to go, no suspension.
Correct. The gun was removed from their
head. The immediate threat to their
revenue stream, which is being unable to sell cars in their
biggest U.S. market, was neutralized.
So if the threat is gone and they've already complied with
the. Changes why so now, yeah.
Why represent yourself in court yesterday to fight a battle
that, on paper, is already over? Why kick the hornet's nest?
That is the multi billion dollar question we are unpacking today
and to understand the answer we have to look beyond just the
immediate threat of a license suspension.
We have to look at court filings from February 13th, the DMV
rulings from two months ago, and some crucial financial context.
OK, so let's start with the actual lawsuit first, the one
filed on February 13th. Right.
So Tesla's attorneys filed a complaint in state court, and
they are specifically targeting a decision made by the Office of
Administrative Hearings, or OAH. And the OAH is the body that
handles disputes between state agencies and businesses, right?
Exactly. And about two months ago, the
OAH ruled that Tesla had engaged in false advertising by using
terms like Autopilot and full self driving.
And Tesla's response in this new filing?
They are calling the ruling wrongful and baseless.
They are arguing that the OAH got the facts completely wrong
and that the label needs to be completely scrubbed from the
record. Wrongful and baseless.
I mean, that is very strong language for a company that
effectively just admitted they needed to clarify things by
adding supervised to the name of the software.
Well, and that's the nuance they're trying to navigate here.
Tesla saying fine we will change the name to Full Self Driving
Supervised to keep the peace and keep selling cars today, but
they are refusing to accept the premise that the original names
were inherently deceptive. I see, so the argument is more
like we're changing it to be helpful moving forward, but we
refuse to legally admit we were wrong in the past.
Precisely. It sounds like a matter of
corporate pride, but being legally categorized as a false
advertiser carries incredible weight.
It's about the permanent record. So what is their actual defense?
Because looking at it as a consumer, full self driving
seems like a pretty specific promise.
If I go to a restaurant and buy something called the Full roast
Beef and it's just two slices of plain bread, I'm going to be
confused. Right, and that was exactly the
DMV's argument. They said the terms inherently
suggested the cars were autonomous when they weren't.
But Tesla's argument in this new filing is really interesting.
They are leaning heavily on the idea that no one was actually
confused. Really, that's the defense.
Yeah, they argue the DMV never proved that consumers were
confused. They're filing claims that it
was, quote, impossible to buy the car or use the features
without seeing clear, repeated statements that the vehicle is
not autonomous. Impossible.
That seems like a very high bar to clear in court.
It is, but they are pointing to the user manual.
The on screen warnings every time you enable the feature, the
fine print on the website, they're basically saying, look,
we told you to keep your hands on the wheel, we told you
require supervision. If you thought it drove itself,
you just weren't reading the instructions.
You know that reminds me of those terms and conditions we
all just scroll past on every app we download.
Legally, the text is there, but there is a serious tension
between a brand name like Autopilot and the fine print
telling you to keep your hands on the wheel.
It's the core tension of this entire saga.
For years Tesla has lived in in that gap.
Autopilot sounds like an airplane which still has pilots
but people associated with the plane flying itself.
Full self driving sounds like a robot but the screen says keep
your hands on the wheel. And they have made changes
recently to how they sell this. They have, you mentioned
supervised being added to the name last week, but they've also
shifted the business model. It used to be this massive
upfront fee to buy FSD. Now they've really pivoted to a
subscription model. Which maybe changes the
expectation a bit. It frames it more as a software
service rather than a fundamental capability of the
physical car. Right, but clearly the DMV felt
that wasn't enough to erase the past marketing, which is why the
OAH ruling happened in the first place.
OK, but here is where I get stuck on Tesla's argument that
it was impossible for anyone to be confused because we have
eyes. We have seen how people treat
these cars on the road. The behavior suggests people
were very confused. Right.
I'm thinking specifically about that, that 60 Minutes interview.
Do you remember this back in 2018?
Vividly. That clip is basically legendary
in legal circles at this point. So Elon Musk is in a model 3
with Leslie Stahl. They were on the highway and he
literally takes his hands off the wheel.
Hands completely in the air. Gesturing while he talks, he
tells her he is, quote, not doing anything, and he claims
the car is driving itself. Now, if the CEO of the company
is on national television demonstrating that, doesn't that
totally undermine the argument that consumers should just read
the manual and keep their hands on the wheel?
It absolutely complicates their defense.
You can point to the manual all day long, but if the public
demonstration by the face of the company contradicts that manual,
a jury is going to have a really hard time accepting that no
reasonable person was confused. Because the CEO was acting like
it was fully autonomous. Exactly, and juries are already
having a hard time with it. Look at the fatal crash verdict
from late last. Year the $243 million verdict.
Yes, this is a crucial piece of context for why Tesla is
fighting the DMV so hard right now.
Right. So in that specific case, the
driver was on the highway and dropped his phone.
Correct. He was driving, dropped his
phone and scrambled to pick it up, and he testified that he
relied on the Enhanced Autopilot system to brake for an obstacle
while he was looking down. And it didn't brake.
It didn't, and the during held Tesla partly liable for the
crash. They looked at the situation and
decided that, yes, the driver was distracted, but the company
bears responsibility for creating an expectation of Stacy
that just didn't exist. Which feels like a direct
refutation of what Tesla's arguing in this new lawsuit.
Tesla's saying it's impossible to be confused and a jury
literally just said this driver was confused and it is partly
your fault. Exactly, and that verdict was
nearly 1/4 of a billion dollars. Now imagine if the state of
California, which is the biggest car market in the US, has a
finalized, uncontested ruling on the books that officially labels
Tesla a false advertiser regarding autonomy.
It's Exhibit A in every future lawsuit.
Exactly. It opens the floodgates.
Every time there's a crash, every plaintiff's lawyer just
walks into court and says the state of California already
determined they lie about this technology.
Tesla simply cannot afford that label.
So even though they satisfied the DMV's immediate demand to
change the website to avoid a suspension, they have to scrub
that false advertiser Scarlet Letter off their record.
It is entirely about risk containment.
Which brings us to the why now of it all.
Because it is 2026, we are looking at a very different
Tesla than the one in 2018. Very different, and this is
where their broader business strategy comes into play.
Because EV sales actually declined last year.
Right. The market for standard electric
vehicles has saturated. Competition is fierce.
Everyone makes a good EV now. So Tesla has signalled very
clearly that their future isn't just selling standard cars to
human drivers anymore. It is robotaxis.
They are currently testing automated vehicles in Austin,
TX. And they just announced the
start of production for the Cyber Cab.
Right. And for you listening who
haven't seen the design of the Cyber Cab, it is A2 seater
vehicle with absolutely no steering wheel and no pedals.
None. It is designed entirely around
the premise that the computer does 100% of the driving 100% of
the. Time.
OK, so connect the dots for me here.
How does this lawsuit against the DMV relate to the launch of
the Cyber Cab? It comes down to trust.
If you are trying to convince regulators to let you put a car
on public roads without a steering wheel, and you were
trying to convince the public to actually get inside that car,
you cannot have a regulatory record that says you've falsely
advertised self driving capabilities.
Because if you lied about full self driving back when there was
a steering wheel, why should anyone trust you when you say it
works now that you've literally taken the wheel away?
Exactly. The stakes are existential for
them now. In the past, if Autopilot
failed, the human driver could grab the wheel that was the fail
safe. With a cyber cab there is no
fail safe. The system is the driver.
So the definition of full self driving stops being a marketing
term and becomes the literal legal definition of the product.
They need a totally clean slate before the cyber cab hits the
streets and volume. They need a clean bill of health
from regulators. They need the narrative to be.
We have always been clear, the technology has been steadily
progressing and now it is fully ready.
They cannot afford the narrative to be we over promised for a
decade and now we want your blind faith.
Which makes sense. There was a clip from Nancy
Tangler. She's an investor in one of our
sources, and she was calling Tesla a generational
opportunity, yes, but that opportunity seems entirely
contingent on this pivot to robotax is actually working.
It is. The massive valuation of the
company isn't based on selling a few more Model YS.
It is based on the idea that Tesla will solve autonomy and
dominate the robotaxi market globally.
Nancy Tangler is absolutely right that if they pull it off
its massive, but the IF is doing a lot of heavy lifting.
And that if gets very shaky if the courts decide you've been
lying about your progress the whole time.
Correct, and other regulators are watching.
If California sticks to this false advertising ruling, other
states might just follow their lead.
It makes getting permits for the cyber cab much harder
everywhere. There is one other legal
headache we should touch on because it ties directly into
this DMV situation, the class action lawsuit.
Right, the one currently winding through the California courts.
Yeah. And this isn't the state suing,
this is actual customers. Customers who bought FSD years
ago, some of them paid 10 or $12,000 upfront.
Expecting their cars would be revenue generating ROBER taxes
by now. Because that was the pitch Musk
promised for years, that the car you bought today would
appreciate in value because it would go earn money for you as a
Rover taxi while you slept. Which has not happened.
Has not happened. So those customers formed a
class action and are saying I paid for a feature that doesn't
exist. I want my money back.
And if the DMV rulings stands. It is basically a signed
confession for the class action lawsuit.
The consumers can just point to it and say, look, the state
regulator already investigated and found that Tesla falsely
advertised this feature, therefore give us our refunds.
That could be billions of dollars in refunds.
Easily, the financial hit would be massive, but again, the
reputational hit of losing a massive false advertising class
action right as you launch the cyber cab might be even worse.
It really feels like they are fighting a war on 2 fronts here.
They have the legacy business, the cars with steering wheels
where they need to justify the past marketing, and then they
have the future business, the cyber cab, where they need to
build absolute trust. And they are trying to use this
lawsuit against the DMV to bridge that exact gap.
They want to get a judge to agree that they were never
deceptive, that the technology was always meant to be
supervised, and that they were clear about that.
If they win, it weakens the class action and clears the
regulatory pass for the cyber cap.
So to sum this all up, Tesla has technically satisfied the DMV by
adding the word supervised to their labels, but they are suing
anyway to scrub the false advertiser brand from their
record. They claim their warnings were
always perfectly clear, despite years of marketing that
suggested otherwise. The pivotal question isn't just
about a name change or updating a manual, It is about whether a
company can claim a system is full self driving while legally
arguing that no reasonable person to trust it to drive
itself as the cyber cab with no steering wheel rolls off the
line. In Texas, that definition is no
longer just semantics, it is literally the entire business.