Tesla has been telling customers for roughly a decade that all of its vehicles have the capability to be self-driving. Now the company is at a crossroads as it searches for ways to fulfill that promise to some of its earliest buyers.
On Wednesday, Tesla CEO Elon Musk announced a plan that would require owners of older cars to either trade in their vehicles at a discount or have them upgraded in yet-to-be-built factories to access self-driving capabilities. So far, reception to the plan from longtime Tesla owners and some investors has been cold.
“Basically HW3 customers are screwed,” Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management and an early Tesla investor, wrote on X, referring to a computer used in some older Tesla cars.
As far back as 2016, Tesla has promised that its vehicles were all equipped with the hardware necessary for full self-driving capability at a safety level “substantially” better than that of a human driver. But the company first admitted last year that owners of older vehicles will need to upgrade their cars to achieve autonomous driving.
“Unfortunately, Hardware 3, I wish it were otherwise, but Hardware 3 simply does not have the capability,” to provide fully autonomous driving, Musk said on a call with analysts, reiterating comments he had made last year.
That’s a problem for the potentially tens of thousands of customers whose vehicles have that hardware and who purchased one-time licenses to use Tesla’s Full Self-Driving software. Some of those people bought their cars at least in part because of Musk’s big promise of fully autonomous driving.
Cars equipped with HW3 were sold from early 2019 onward, before Tesla introduced Hardware 4, the current version, four years later. When HW3 was introduced, Tesla also offered the ability to retrofit some older models with the then-new hardware offering. The company sold FSD software for prices as low as $5,000 and as much as $15,000 between 2019 and 2022.
Musk’s plan to appease owners of older vehicles will likely be expensive for the company. He said on Wednesday that customers who bought FSD for their HW3-equipped cars would be offered a “discounted trade-in” for models that have the more advanced Hardware 4. Tesla is also set to offer the ability to replace the HW3 computer and cameras in those older models.
Replacing the computer and cameras will likely be time-consuming. Musk said Tesla would need “microfactories” in major cities to efficiently replace any hardware, adding that it would be ”extremely slow” to do so at the company’s service centers. He didn’t provide a timeline for implementation of those fixes.
Ashok Elluswamy, Tesla’s head of artificial-intelligence software, said on Wednesday’s call that a digital iteration of the Version 14 software used in modern Tesla cars will be released by the end of June. It should “basically” provide the same features that newer cars can access, he said.
Analysts are criticizing the company’s approach to customers with older cars.
In a note to clients late on Wednesday, Truist’s Will Stein listed Musk’s “HW3 capitulation” as one of the negatives coming out of the Tesla call. He called the minifactory plan an endeavor that “seems expensive and perhaps not even sensible.”
Morgan Stanley’s Andrew Percoco said in a note to clients that Musk’s comments raise more questions from investors about the value of Tesla’s car parc, or registered vehicles. Percoco estimated that there are some 3.5 million vehicles equipped with HW3 on the road. Gerber said some 285,000 HW3-equipped cars have FSD.
Tesla shares fell 3.6% on Thursday.
U.S. customers aren’t the only ones upset by the gap between Tesla’s promises on self-driving and the reality. Some customers in Europe purchased their cars at least partially because of the company’s and Musk’s promises related to self-driving. But FSD remains unavailable in most of the European Union, with the exception of the Netherlands, which approved the system this month.
However, it appears that the approved version can only run on Tesla’s newer computer, leaving customers with older hardware stuck, according to several customers who posted their interactions with Tesla customer support online, including Dutch Model 3 owner Mischa Sigtermans.
Sigtermans posted on X that he bought a Tesla Model 3 Performance with the FSD package in 2019 for 6,400 euros ($7,485). He recently launched a website aiming to gather plaintiffs for a prospective class-action lawsuit against Tesla over its treatment of HW3 customers.
As of Thursday, about 5,000 Tesla owners across nearly three dozen countries had signed up, according to the website’s statistics portal. It estimates that some €9.2 million, or $10.7 million, have been spent by those people on FSD. Sigtermans’s website notes that its figures are based on self-reported data that have not been independently verified.
“Seven years of ‘later this year’ just became ‘in a factory we haven’t built yet,’ ” Sigtermans wrote on X of Musk’s comments Wednesday. “No timeline. No refund. Oh, but a trade-in discount. Woohoo, pay Tesla twice for the same broken promise.”
If a lawsuit were to be filed, it would join similar legal actions filed in several countries, including China, Australia and the U.S., over Tesla’s self-driving claims. A representative for Tesla did not immediately return MarketWatch’s request for comment.
Read more: Tesla is approaching a major milestone — but it may not be enough to lift the stock
