Tesla is required to confront a fraud lawsuit for asserting its cars had the ability to drive themselves

Yesterday, a federal judge ruled that Tesla must proceed with a lawsuit accusing the company of fraudulently misrepresenting the self-driving capabilities of its vehicles.

The lawsuit, filed by California resident Thomas LoSavio, centers on claims made by Tesla and CEO Elon Musk starting from October 2016. This was shortly before LoSavio purchased a 2017 Tesla Model S equipped with “Enhanced Autopilot” and “Full Self-Driving Capability.” US District Judge Rita Lin, in the Northern District of California, dismissed some of LoSavio’s claims but allowed the lawsuit to continue on the allegations of fraud.

The remaining claims, which arise out of Tesla’s alleged fraud and related negligence, may go forward to the extent they are based on two alleged representations: (1) representations that Tesla vehicles have the hardware needed for full self-driving capability and, (2) representations that a Tesla car would be able to drive itself cross-country in the coming year. While the Rule 9(b) pleading requirements are less stringent here, where Tesla allegedly engaged in a systematic pattern of fraud over a long period of time, LoSavio alleges, plausibly and with sufficient detail, that he relied on these representations before buying his car.

Previously, Tesla had secured a major victory in the case when a different judge upheld the carmaker’s arbitration agreement and ordered four plaintiffs to go to arbitration. However, Thomas LoSavio had opted out of the arbitration agreement and was granted the opportunity to file an amended complaint.

LoSavio’s amended complaint aims to achieve class-action status, representing himself “and other consumers who purchased or leased a new Tesla vehicle with Tesla’s ADAS [Advanced Driver Assistance System] technology but did not receive the self-driving car that Tesla had promised.”

Cars not fully autonomous

Judge Lin did not make a ruling on the merits of the claims but found that they were adequately alleged. LoSavio’s case centers on a Tesla statement from October 2016, which claimed that all its future cars would be equipped with “hardware needed for full self-driving capability.” Additionally, he points to a Tesla email newsletter from November 2016, which stated that “all Tesla vehicles produced in our factory now have full self-driving hardware.”

The ruling said:

Those statements were allegedly false because the cars lacked the combination of sensors, including lidar, needed to achieve SAE Level 4 (“High Automation”) and Level 5 (“Full Automation”), i.e., full autonomy. According to the SAC [Second Amended Complaint], Tesla’s cars have thus stalled at SAE Level 2 (“Partial Driving Automation”), which requires “the human driver’s constant supervision, responsibility, and control.”

If Tesla meant to convey that its hardware was sufficient to reach high or full automation, the SAC plainly alleges sufficient falsity. Even if Tesla meant to convey that its hardware could reach Level 2 only, the SAC still sufficiently alleges that those representations reasonably misled LoSavio.

Lin concluded that the complaint “sufficiently alleges that Musk falsely represented the vehicle’s future ability to self-drive cross-country and that LoSavio relied upon these representations pre-purchase.”

Musk had claimed during an October 2016 news conference that a Tesla car would be capable of driving from Los Angeles to New York City “by the end of next year without the need for a single touch.”

The statute of limitations is not currently an obstacle in the case

Judge Lin ruled that the complaint can proceed despite the fact that the applicable statutes of limitations range from two to four years, and LoSavio filed the lawsuit more than five years after purchasing the car. Under the delayed discovery rule, the limitations period starts when “the plaintiff has, or should have, inquiry notice of the cause of action.”

In September 2023, the court granted Tesla’s motion to dismiss some of LoSavio’s claims due to the statute of limitations, but allowed LoSavio to amend his complaint.

LoSavio alleges that for years after purchasing his car, he relied on “Tesla’s repeated claims that the car’s software was the source of delay, and that software fixes were perpetually forthcoming,” as stated in yesterday’s ruling. However, when Tesla declined to update his car’s cameras in April 2022, “LoSavio allegedly discovered that he had been misled by Tesla’s claim that his car had all the hardware needed for full automation.”

Lin rejected Tesla’s argument that LoSavio should have known this earlier. “Although Tesla contends that it should have been obvious to LoSavio that his car needed lidar to self-drive and that his car did not have it, LoSavio plausibly alleges that he reasonably believed Tesla’s claims that it could achieve self-driving with the car’s existing hardware and that, if he diligently brought his car in for the required updates, the car would soon achieve the promised results,” Lin wrote.

Tesla can still argue later in the litigation that LoSavio should have realized this earlier. “Having adequately alleged diligence, the extent of his diligence and its reasonableness are questions of fact not suitable for disposition at this stage,” the judge wrote.

Warranty claims dismissed

Judge Lin dismissed other fraud claims related to Tesla’s statements about future developments in self-driving technology being “forthcoming at an unspecified time.” The ruling stated that LoSavio failed to plausibly allege that these statements were false or misleading at the time they were made.

“LoSavio does not plausibly allege that those representations promised fully autonomous self-driving by any particular timeline, let alone that Tesla knew that timeline to be unrealistic,” the ruling said.

Additionally, Lin dismissed warranty claims because “LoSavio knew at the time of purchase that the car was not fully self-driving.” These claims were dismissed with prejudice and without leave to amend, as LoSavio had already amended the claims twice and failed to demonstrate how he could sufficiently strengthen these allegations with further amendment.

Regarding the claim for injunctive relief, Judge Lin found that LoSavio does not currently have standing to seek such relief because “the complaint does not allege that LoSavio has any interest in buying another Tesla.” However, the judge dismissed this claim without prejudice, allowing LoSavio the opportunity to amend the claim. The ruling noted that LoSavio had indicated he would be interested in buying another Tesla if he could regain trust in the brand’s statements and self-driving capabilities, and that injunctive relief is necessary to prevent future harm.

LoSavio has until June 5 to amend his complaint, and Tesla has until June 19 to respond.