Tesla Faces Potential Sales Ban in California Over FSD Misleading Advertising Lawsuit

Summary:
Tesla is at risk of losing its license to sell vehicles in California for 30 days due to a lawsuit by the California DMV accusing the company of false advertising related to its Autopilot and Full Self-Driving (FSD) systems. The outcome could significantly impact Tesla’s Q3 sales, particularly as California remains its largest U.S. market. The DMV claims Tesla misled the public with exaggerated claims about the capabilities of its ADAS features, and the trial’s verdict could set a major precedent for autonomous vehicle marketing.

Tesla’s California Sales License at Risk Amid FSD Misrepresentation Case

Tesla (TSLA), the dominant force in the U.S. electric vehicle market, is facing a potentially devastating legal challenge from the California Department of Motor Vehicles (DMV). The agency is pushing to suspend Tesla’s license to sell cars in California for 30 days, accusing the automaker of false and misleading advertising around its Autopilot and Full Self-Driving (FSD) systems.

If successful, the suspension would come at a particularly damaging time for Tesla, which is trying to recover from a year of declining sales and is counting on a strong Q3 2025 due to the sunsetting of the federal EV tax credit in Q4. With California accounting for about one-third of all EV sales in the U.S., and Tesla’s largest delivery capacity centered in the state, the timing of the legal action could be catastrophic for the company’s near-term performance.

What Is the DMV’s Case Against Tesla?

The legal dispute between the California DMV and Tesla dates back to 2021, when the agency began investigating the automaker’s marketing claims related to its ADAS (Advanced Driver Assistance Systems) offerings.

Tesla’s use of the terms "Autopilot" and "Full Self-Driving" has long been controversial. Critics argue these labels mislead consumers into believing the systems can operate vehicles without human input, despite Tesla’s own disclaimers requiring drivers to remain alert and maintain control.

Some of Tesla’s most problematic advertising statements cited in the case include:

“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 even more dramatically:

“From Home – All you will need to do is get in and tell your car where to go... Your Tesla will figure out the optimal route... and park itself.”

The DMV’s position is that these statements go beyond overenthusiastic marketing—they amount to deliberate misrepresentation of the vehicle’s actual capabilities. The agency also claims Tesla has said one thing to regulators and another to the public, further eroding trust.

Tesla’s Defense: “We Warn Drivers”

Tesla has tried to defend its position by pointing to frequent in-vehicle warnings and disclaimers, which remind drivers to remain attentive and keep their hands on the wheel. The company argues that these warnings counterbalance any potential for consumer confusion caused by branding or promotional materials.

Perhaps more surprisingly, Tesla also argued that its long-standing use of terms like FSD without regulatory pushback implies implicit permission to continue doing so—a position the court did not find compelling. As a result, the case is now moving forward with a five-day hearing scheduled this week.

DMV’s Proposed Penalties: License Suspension and Restitution

The California DMV is seeking a suspension of Tesla’s manufacturer and dealer licenses for at least 30 days. In addition, the agency is pursuing restitution under Government Code § 11519.1(a), with the exact amount to be determined later.

While a one-month ban may sound brief, in context, it’s potentially crippling. Tesla is racing to fulfill a record-breaking number of deliveries in Q3, fueled by the final months of eligibility for the federal EV tax credit. If the automaker is barred from selling in California—its largest U.S. market and logistical hub—it could throw those efforts into chaos.

Key Witnesses: From DMV Investigators to Legal Scholars

As the hearing unfolds, several high-profile figures are expected to testify, including:

• Melanie Rosario, Commander–Sergeant of DMV Valley Area Command, who led the investigations into Tesla’s allegedly misleading advertising.

• Professor Bryant Walker Smith, a University of South Carolina law professor and a key contributor to SAE’s automated driving standards, who will testify remotely on the language and implications of ADAS terminology.

Their testimonies are likely to shape the court’s understanding of how Tesla’s statements compare with the actual, legally accepted definitions of autonomous driving capability.

The Bigger Picture: Marketing vs. Reality in the AV Race

This case touches on a much larger issue in the world of automated vehicles: what can you legally call a self-driving system? Tesla is not alone in using aggressive marketing to promote driver-assistance features, but it is undoubtedly the most prominent—and the most provocative.

Industry observers and regulators have long been concerned about a mismatch between branding and real-world functionality, particularly in situations where consumer misunderstanding could lead to dangerous overreliance on automation.

Electrek’s Take: “A Long Overdue Reckoning”

As Electrek reports, the consequences of this lawsuit could serve as a long-overdue accountability moment for Tesla and CEO Elon Musk, whose years of bold (and often unrealistic) self-driving promises have yet to materialize.

“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 through the many lies about self-driving capabilities inside Tesla vehicles.”

The situation is particularly poignant given that Musk once promised coast-to-coast FSD by 2017—a milestone that still hasn’t been achieved nearly a decade later. The growing disillusionment is summed up by one popular comment:

“It’s coming up to the 10th anniversary of that promise and I still don’t think FSD will ever be possible.”

What Happens Next?

The hearing is ongoing, and a ruling is expected to follow shortly after. If Tesla is found guilty and its license is suspended, the company will face the logistical nightmare of rerouting California-bound deliveries out of state or delaying them entirely—both highly damaging to Q3 earnings and customer satisfaction.

And beyond just Tesla, this case could set a precedent for how self-driving systems are marketed across the auto industry. Regulators around the world are closely watching.

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