Since its conception, Elon Musk has been relentless in his promotion of Tesla Inc.’s (TSLA, Financial) self-driving technology, but his promises have often failed to become reality. In January 2016, for example, Musk said that full self-driving capability would be available to Tesla drivers within six months. In March 2019, we are still waiting. Last month, Musk offered an updated timeline, saying it would be “feature complete” and fully operational by the end of 2019.
Yet, while Musk has been out front promoting Tesla’s full self-driving and autopilot driver-assist technology, the company itself appears to be quietly walking back on its past promises. A March 6Â update of the Tesla website includes a number of changes to how it talks about the technology with regard to safety, hardware and regulatory approval.
The recent changes may well be an attempt at managing customer expectations, but it is probably too little, too late. Tesla has made big promises it probably cannot deliver. That opens the door to considerable financial, legal and regulatory liabilities in the near future, which may, in turn, put significant pressure on the stock price.
Hardware claims go soft
Tesla started selling full self-driving capability as an upgrade to all its vehicles in October 2016. At the time, the company said all its cars came with the necessary hardware to activate FSD, once the technology was validated and regulators approved its use. The latest website update alters this statement substantially.
Gone is the bold headline declaring unequivocally that all Tesla vehicles have the necessary hardware to run the technology. In its place is the far more innocuous “Future of Driving.” Also gone is this promise: “All Tesla vehicles produced in our factory, including Model 3, have the hardware needed for full self-driving capability.” Instead, Tesla now says it is only new cars that come with the necessary hardware.
This is not the first time the company has had to walk back its declarations about its vehicles’ hardware capabilities. Last summer, Tesla announced its future vehicles would be equipped with a newer, better onboard computer featuring a “full self-driving AI chip” that would enable FSD. Musk also pledged all Tesla owners who had bought the technology would get the computer upgrade for free.
Last week’s website update makes no reference to the promised hardware upgrades. That does not mean Tesla is going back on its promise, but it will likely raise concerns among some customers. Of greater concern to owners is the possibility that the next hardware update may end up obsolete as well.
RIP FSD safety claims
A more important change to Tesla’s autopilot and full self-driving webpage concerns its safety claims, which have been completely revamped. Tesla completely excised the headline of “substantially greater” safety compared to human drivers. The website has also added an interesting new caveat to the end of its description of autopilot’s functionality:
“Current Autopilot features require active driver supervision and do not make the vehicle autonomous.”
The pre-update description was far more milquetoast and did not question the idea that autopilot is virtually synonymous with autonomy, a conflation Musk has made frequently in the past:
“Every driver is responsible for remaining alert and active when using Autopilot, and must be prepared to take action at any time.”
Tesla has also walked back a number of claimed capabilities. The Summon feature, for example, is explicitly limited to parking lots, rather than anywhere, as the pre-update text implied. An automated Supercharger function has also been excised entirely.
While the reasoning behind the changes to the hardware text remains somewhat obscure, the impetus to revise its safety and functionality is quite clear. Tesla’s oft repeated autopilot safety features were based on a report published by the National Highway Traffic Safety Administration (“NHTSA”) in January 2017. A recent review of this study has revealed glaring issues with the NHTSA’s methodology. A more in-depth analysis of the safety data even suggests that autopilot was more dangerous, not less.
Verdict
Tesla’s latest backtracking is bad news for the company, and its stock, for a number of reasons. Indeed, virtually all the leading experts believe self-driving cars are several years, if not a decade or more, away. Thus, Musk’s statement is more than merely aggressive; it is downright fanciful, as we explained in a recent research note.
Worse is the business with the unjustifiable safety claims. It is no surprise Tesla has quietly scrubbed its website of language based on this deeply flawed study. But it is likely too little, too late. In the wake of the exposure of the NHTSA’s disastrous study dissection, the agency has opened new investigations into recent crashes. This could expose Tesla to significant future liabilities since it will not be difficult to argue that a so-called tech company would have made the same errors in its own analysis, yet it happily repeated it time and again.
Tesla’s autopilot ambitions appear to be unraveling in real-time. The stock price is likely to follow in short order.
Disclosure: Short TSLA via long-dated put options.
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