Tesla investors appeared to ignore the automaker’s revelation that it’s facing a subpoena from the Securities and Exchange Commission probing its claims about the semi-autonomous Autopilot system. A monthlong rally has helped Tesla shares recover much of the value lost in December.
Autopilot and the newer Full Self-Driving technologies have come under increasing scrutiny from regulators and consumers alike, critics contending that Tesla has significantly overinflated their capabilities, resulting in numerous crashes and some fatalities.
The automaker faces lawsuits from owners and the families of those killed in Tesla crashes, while regulators in California are looking at the possibility of banning Tesla from selling vehicles in the state. Now, both the SEC and U.S. Department of Justice are looking at Tesla’s claims, probes that could result in fines and even criminal charges.
“The company has received requests from the DOJ for documents related to Tesla’s Autopilot and FSD features,” the automaker stated in the annual 10-K report it submitted to the SEC this week.
Growing scrutiny
This won’t be the first time Musk and Tesla have faced the scrutiny of the commission. It has taken the automaker and its CEO to task on several occasions, notably faulting the South African-born executive for his frequent use of tweets in ways that could materially impact the value of Tesla stock. Musk has faced millions of dollars in fines and was forced to step down from his additional role as the carmaker’s chairman. But the SEC decided against even more aggressive measures, among them the prospect of forcing Musk to relinquish all executive duties at Tesla.
For the moment, at least, shareholders appear unconcerned. Tesla shares rose nearly 4% on Tuesday and, as of mid-morning Wednesday were up again by nearly a dollar, to around $174. However, they dipped down before recovering back to the $174 range by early afternoon. That marks a more than 70% increase from the $101.81 low it hit in the final days of 2022. At that point, it had lost more than $800 billion in market capitalization for the year. But, with a current market cap of nearly $548 billion, it’s still sharply down from its 2022 peak of about $1.2 trillion.
Whether they’ll remain sanguine likely depends upon what happens in the weeks and months ahead regarding the various challenges facing Tesla’s autonomous technologies.
Crashes and fatalities
Autopilot and Full Self-Driving now have been linked to dozens of crashes, a number of them fatal. That has raised concerns about the safety of those technologies. An investigation now underway by the National Highway Traffic Safety Administration could lead to the costly recall of more than 800,000 vehicles. The acting head of NHTSA this month said she has taken steps to speed up the probe. The safety of those technologies has been raised in a number of lawsuits filed by survivors of Tesla crashes and families of those killed.
But the SEC probe is coming from a different angle, questioning whether Tesla intentionally misled customers by overstating the capabilities of the semi-autonomous technologies. That concern has also been raised by at least one current Tesla owner lawsuit, as well as an investigation by the California Department of Motor Vehicles. If the DMV rules against the automaker it could levy fines or even block Tesla from selling vehicles in the country’s largest market for EVs.
The SEC and Justice Department could take a number of actions, the Reuters news service raising the prospect of criminal sanctions.
Did Tesla intentionally mislead customers?
At the heart of the issue is whether Tesla has intentionally misled consumers to believe Autopilot and FSD are true, hands-free systems. Critics have pointed to an early video released by the automaker implying such capabilities, as well as e-mails from Musk ordering edits to the video. Testimony by the current head of the Autopilot development team in an ongoing lawsuit has also raised questions about Tesla’s marketing strategy.
On its corporate website, the automaker notes that drivers must keep their hands on the steering wheel while operating in Autopilot mode.
Concerns about Autopilot and Full Self-Driving — both from a technical and marketing perspective — are among the many issues the automaker faces. It’s facing a growing assortment of challengers, with the number of all-electric vehicles tripling last year and expected to grow again sharply in 2023. Rising inflation and interest rates pose additional changes, Musk has said on several occasions. And Tesla’s once pristine image among current and potential buyers appears to have been tarnished by the CEO controversial behavior since completing his $44 billion acquisition of Twitter last October.
Investors unfazed
But investors were buoyed by the company’s latest earnings and sales results and Musk’s upbeat forecast going forward.
He has also hinted that demand surged this month as a result of the sharp price cuts announced for products like the Tesla Models 3 and Y.
Ford has responded by ordering discounts for its all-electric Mustang Mach-E, but General Motors and Volkswagen have indicated they will not cut prices for their own EVs in response to the move by Tesla.