Tesla’s $500 Million Dilemma: Upgrade or Compensate 4 Million Drivers

Tesla is facing mounting pressure as it must replace or retrofit the ‘self-driving’ computers in approximately 4 million vehicles, or compensate owners who purchased the Full Self-Driving (FSD) package.

The admission from CEO Elon Musk that the HW3 computers do not support the promised capabilities of unsupervised driving has raised legal and ethical concerns about the company’s previous claims.

Since 2016, Tesla has marketed its vehicles as equipped with “all the hardware necessary for full self-driving capability”. However, as Musk recently acknowledged, this assertion is false for many models fitted with the HW3 computer, which does not meet the required specifications for level 4 or 5 autonomous driving.

Potential $500 Million Cost Looms as Tesla Scrambles to Address Vehicle Upgrades

This situation has triggered comparisons to the largest automotive recalls in history, potentially costing the company in excess of $500 million just for the hardware replacements.

The ramifications extend beyond just financial concerns. Tesla’s credibility is at stake, following years of promises from Musk about delivering robotaxi capabilities through software updates. With an estimated 4 million HW3 vehicles in circulation, the potential implications for consumer trust and brand loyalty are significant. Legal precedents already exist that could compel Tesla to act in favor of owners who feel misled.

Musk’s acknowledgment that the computer upgrades will be “painful” reflects the complexity of the task ahead. The ongoing strain on Tesla’s service operations, coupled with growing legal challenges—evidenced by multiple lawsuits claiming misleading advertising—suggests an uphill battle not only in rectifying these issues but also in restoring confidence among consumers and investors.

In a twist, Musk has hinted that Tesla may encourage vehicle owners to upgrade or repurchase vehicles as a solution rather than replace HW3 computers. This strategy, while potentially financially expedient for the company, may only deepen the discontent among current HW3 owners who now find themselves locked out of the capabilities they were sold.