Tesla has a California problem to deal with as it heads into 2026 with dreams of expanding its fleet of self-driving taxis across the U.S.
Tuesday, the California Department of Motor Vehicles found Tesla violated state law for using misleading terms such as “autopilot” and “Full Self-Driving” to describe Tesla’s driver-assistance system.
Tesla could have had its manufacturing and dealer licenses suspended for 30 days. The DMV decided to skip the manufacturing suspension and give Tesla 60 days to “take action” on its marketing terms or risk the suspension of its dealer license.
Tesla didn’t immediately respond to a request for comment about the ruling.
Investors were taking the news in stride. On Wednesday, the stock traded as high as $495.28, a new all-time high, before the market’s artificial-intelligence jitters took over. Shares lost 4.6%, closing at $467.26. The S&P 500 and Dow Jones Industrial Average fell 1.2% and 0.5%, respectively.
AI chip start-up Mythic might be the reason for the selloff. It’s designing chips for AI computing that might cost less and use less power than Nvidia’s. That seems to have dragged anything related to AI down. Nvidia shares were off 3.8%. Shares of power generation technology provider GE Vernova were down 10.5%.
As for California, the fix might be as simple as changing marketing practices. Tesla’s FSD system is still considered a Level 2 autonomous driving system, meaning drivers must remain attentive to the road at all times while it’s in use. Level 3, 4, and 5 autonomous systems let drivers stop paying attention to the roads to varying degrees.
Tesla is testing fully autonomous robo-taxis in the state, with safety drivers in the passenger seat. It also launched a self-driving cab service in Austin, Texas, in June. That service still has a safety monitor in the front passenger seat. Tesla CEO Elon Musk believes Tesla can safely remove the safety monitor by year’s end.
Robo-taxi safety, expansion, and regulatory interactions are certainly crucial for Tesla. The company isn’t valued at $1.5 trillion solely because of its car business. Investors believe that it will create physical AI applications, such as self-driving cars and robots, that will unlock a new era of earnings growth for the company.
Investors have been feeling more optimistic about AI and Tesla lately. Shares closed at a record high on Tuesday. It was one year ago today, Dec. 17, 2024, that Tesla set its old closing high at $479.86.
Tesla stock has only closed above $480 once, on Tuesday. It also traded above $490 for the first time yesterday.
