In the Tesla Autopilot investigation, US prosecutors are focusing on securities and wire fraud

Written by Mike Spector and Chris Prentice

(Reuters) – U.S. prosecutors are investigating whether Tesla Inc committed securities or wire fraud by misleading investors and consumers about the self-driving capabilities of its electric cars, three people familiar with the matter told Reuters.

Tesla’s Autopilot and Full Self-Driving systems help with steering, braking and lane changing — but they’re not fully autonomous. While Tesla has warned drivers to remain ready to take over the wheel, the Justice Department is examining other statements from Tesla and CEO Elon Musk suggesting its cars can drive themselves.

US regulators separately investigated hundreds of crashes, including fatal crashes, that occurred in Tesla vehicles with Autopilot engaged, prompting a mass recall by the automaker.

Reuters exclusively reported on the US criminal investigation into Tesla in October 2022, and is now the first to report on the specific criminal liability being considered by federal prosecutors.

Investigators are exploring whether Tesla committed cyber fraud, which involves deception in interstate communications, by misleading consumers about its driver assistance systems, the sources said. Two of the sources said they are also examining whether Tesla committed securities fraud by deceiving investors.

The SEC is also investigating Tesla’s statements about its driver-assistance systems to investors, one of the people said. The Securities and Exchange Commission declined to comment.

Tesla did not respond to a request for comment. Last October, it was revealed in a filing that the Ministry of Justice had asked the company for information about Autopilot and full self-driving.

The Ministry of Justice declined to comment.

An investigation that does not provide evidence of wrongdoing may result in criminal charges, civil penalties, or no action. One source said prosecutors are far from deciding how to proceed, in part because they are examining voluminous documents submitted by Tesla in response to the subpoenas.

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Reuters was unable to identify the specific statements that prosecutors are reviewing as unlawful. Musk has been aggressively touting the prowess of Tesla’s driver-assistance technology for nearly a decade.

Tesla videos demonstrating the technology that remain archived on its website say: “The person in the driver’s seat is only there for legal reasons. He’s not doing anything. The car drives itself.”

A Tesla engineer testified in 2022 in a lawsuit over a fatal crash involving Autopilot that one of the videos, posted in October 2016, was intended to show the technology’s capabilities and did not accurately depict its capabilities at the time. However, Musk posted the video on social media, writing: “Tesla drives itself (with no human intervention at all) through city streets to highways, then finds a parking space.”

In a conference call with reporters in 2016, Musk described Autopilot as “probably better” than a human driver. During an October 2022 call, Musk addressed the upcoming FSD upgrade, saying it would allow customers to travel “to your work, your friend’s house, or to the grocery store without touching the steering wheel.”

Musk is increasingly focusing on self-driving technology as Tesla car sales and profits decline. Tesla recently cut costs through mass layoffs and shelved plans for a long-awaited $25,000 model that was expected to drive sales growth.

“Going to the wall for autonomy is a very obvious move,” the billionaire executive posted on his social media platform X in mid-April. Tesla shares, which are down more than 28% so far this year, surged in late April when Musk visited China and made progress toward approvals to sell FSD there.

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Musk has repeatedly promised self-driving Tesla cars for nearly a decade. “Mere failure to achieve an ambitious long-term goal does not constitute fraud,” Tesla lawyers said in a 2022 court filing.

File photo: Tesla displayed at the Everything Electric Expo

File photo: Tesla displayed at the Everything Electric Expo

Prosecutors scrutinizing Tesla’s self-driving car claims are treading carefully, aware of the legal hurdles they face, people familiar with the investigation said.

Three legal experts not involved in the investigation told Reuters they would need to prove that Tesla’s claims crossed a line from legal salesmanship to knowingly material and false statements that unlawfully harmed consumers or investors.

US courts have previously ruled that “inflation” or “corporate optimism” regarding product claims does not amount to fraud. In 2008, a federal appeals court ruled that statements of corporate optimism alone did not prove that a corporate official had intentionally misled investors.

Justice Department officials will likely ask for internal Tesla communications as evidence that Musk or others knew they were making false statements, said Daniel Richman, a professor at Columbia Law School and a former federal prosecutor. That’s a challenge, Richman said, but the safety risks involved in overselling self-driving systems “also demonstrate how seriously prosecutors, judge and jury take statements.”

Tesla’s claims about Autopilot and FSD have also come under scrutiny in regulatory investigations and lawsuits.

Safety regulators and courts have raised concerns in recent months that companies’ messages about the technology — including the brand names Autopilot and Full Self-Driving — have lulled customers into a false sense of security.

In April, the Washington State Patrol arrested a man on suspicion of vehicular homicide after a Tesla, with Autopilot on, struck and killed a motorcyclist while the driver was looking at his phone, police records show. In the probable cause statement, a trooper cited the driver’s “admitted lack of interest in driving, while in autopilot mode… placing trust in the machine to drive for him.”

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A State Patrol spokesman told Reuters that a driver in Washington state remains “responsible for the safe and legal operation of that vehicle” regardless of its technological capabilities.

That same month, the US National Highway Traffic Safety Administration launched an investigation into whether Tesla’s recall of more than 2 million vehicles in December adequately addressed safety issues with Autopilot.

NHTSA declined to comment.

The recall follows a long-running investigation opened by regulators after cars equipped with the Autopilot system repeatedly collided with vehicles in first responder emergency scenes. Organizers then examined hundreds of incidents in which Autopilot was used and identified 14 deaths and 54 injuries.

Tesla disputed the NHTSA’s findings but approved the recall, which used over-the-air software updates intended to alert inattentive drivers.

The NHTSA investigation found a “critical safety gap between drivers’ expectations” of Tesla’s technology “and the system’s true capabilities,” according to agency records. “This gap led to predictable misuse and avoidable accidents.”

(Reporting by Mike Spector and Chris Prentice in New York; Additional reporting by Hyunjoo Jin in San Francisco and David Shepardson in Washington; Editing by Brian Thevenot and Matthew Lewis)

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