Tesla appears to be backtracking on its promise
Tesla is now contending with the fallout from its extremely rosy but as yet unfulfilled promises that were made back in 2016, when the EV giant offered unqualified commitments to eventually equip all of its vehicles sold since then with robotaxi-grade FSD capabilities. Now, given the engineering challenges involved in forcing older hardware to work seamlessly with Tesla’s ever-evolving FSD software, the EV giant has apparently rescinded on its commitments, opening the door to billions of dollars worth of refund liabilities.
Concerning. @Tesla is scrubbing evidence of its promise that all Teslas built after 2016 have the hardware necessary for full self-driving.
Fortunately, Paint It Black is still live, and the title still says "Full Self-Driving Hardware on All Teslas".https://t.co/7nzkLlGYO4 https://t.co/fOZ27YwBBD
— Dan O'Dowd (@RealDanODowd) August 23, 2024
Tesla has now deleted its 2016 blog post that offered unqualified commitments to equip the entirety of its fleet with cutting-edge FSD capabilities. You may still access that blog via the wayback machine (click here).
How many cars did Tesla sell under this claim? Around 8 million, at an ASP of $45,000 to $50,000?
Let's see, that's a refund liability of around *$380 billion.*
LOL!$TSLA https://t.co/XPwpNA2XtB
— Stanphyl Capital (@StanphylCap) August 24, 2024
This development has predictably spawned doomsday predictions of Tesla having to face refund liabilities as large as $380 billion! However, when you dig deeper, the resulting liabilities from this policy change might not be as ginormous.
People with HW 3 don't want to lose the value they paid. Investors want all cars shipped since 2017 to be in the robotaxi network. I can't recall many circumstances where a company had to commit as yet undeveloped software would run on current hardware 8 yrs in the future.
— Jim French (@French_Jim) August 24, 2024
Our readers should note that only a small proportion of the Hardware 3 (HW3) fleet subscribed to Tesla’s FSD package. In fact, the EV giant currently has only ~$3 billion in HW3-related unrealized revenue on its books. So, the direct liabilities from this action might not matter in the greater scheme of things.
The bigger threat to Tesla arises from the loss of revenue claims, where some HW3 car owners sue Tesla to recoup the revenue that they might have generated from the robotaxi-grade FSD capabilities of their cars.
This is a serious legal precedent for the 2 million cars in North America with only HW3. $TSLA pic.twitter.com/ENajNiKUwq
— Motorhead (@BradMunchen) August 23, 2024
Alternatively, the courts might compel Tesla to upgrade all HW3 cars to HW4 ones. There is after all a legal precedent for this action. Back in 2022, a court compelled Tesla to upgrade the HW2 car of a Washington state resident to HW3 at zero cost, citing Tesla’s unqualified promises made in 2016.
Of course, breaking ironclad promises to your clients is never a good strategy to build brand authority. At a time when Tesla is facing competition left, right, and center, this development might prove to be an unmitigated disaster for the EV giant if not handled with precision and care.