Tesla may have hidden a federal criminal investigation into its self-driving tech from shareholders

On Wednesday, Reuters reported that the Department of Justice is considering whether to press charges against the company or individual executives following a series of deaths related to its Autopilot feature. It cited three separate people familiar with the alleged inquiry.

“As part of the latest probe, Justice Department prosecutors in Washington and San Francisco are examining whether Tesla misled consumers, investors, and regulators by making unsupported claims about its driver assistance technology’s capabilities,” it wrote, adding that the DoJ declined to comment.

As a matter of corporate policy, Tesla does not engage with professional media organizations and ignores requests for a statement. 

Should the report prove accurate, a criminal investigation would signify a considerable escalation above and beyond an existing regulatory probe by the U.S. National Highway Traffic Safety Administration (NHTSA).

Furthermore, it could conceivably constitute grounds for potential civil lawsuits should Tesla be found to have hidden its existence. Musk is a fan of nondisclosure agreements and has attempted to bury unflattering revelations in the past.

Tesla classifies inquiries from state and federal authorities including the Department of Justice as a potential risk to its business, and lists material pending legal proceedings in its annual and quarterly filings to the SEC.

Nevertheless, it has stated on several occasions, most recently in Monday’s 10-Q, that it has not received any requests from the DoJ on any topic at all since it last provided information in May 2019 on a separate and unrelated issue. 

“There have not been any additional developments in these matters that we deem to be material,” it said on Monday in its filing.

It is, however, entirely possible that the DoJ opted to hide the existence of its criminal investigation from Tesla if prosecutors thought that would help them build a more effective case.

Hopes for a stock price rally

The claims revealed by Reuters come at a critical juncture for Tesla.

Shareholders have been waiting on Musk to close his $44 billion acquisition of Twitter in the hopes that it will end unwanted uncertainty about how many shares in Tesla he may need to sell in order to close the deal. The deal needs to be completed by Friday or a trial will commence that is expected to see a Delaware chancery court judge rule in favor of Twitter and against Musk.

The report is therefore bound to raise suspicion within its devoted retail investor base. Many believe professional media outlets are deliberately and unfairly targeting the company, since it does not spend money on advertisements.

The stock has been attempting to draw support around the $200 mark, a level it first eclipsed in December 2020. Bulls believe it is set for a major rally once there is clarity surrounding the purchase. 

The Tesla CEO recently tried to assuage investor concerns over the company’s outlook last Wednesday during an earnings call. He held out the prospect of a significant stock buyback program next year and set a long-term target for Tesla to exceed the market cap of Apple and Saudi state-owned oil giant Aramco, the two most valuable companies, put together. 

Since its vaunted Optimus droid is not included in that calculation, a key driver of that forecast earnings growth is his software-as-a-service (SaaS) business centered on autonomous cars. 

While the more advanced Full Self-Driving feature is only enabled for some 160,000 Tesla customers in the U.S., who paid thousands for the added option, Autopilot comes standard in every Tesla built. 

Regulators have been cracking down of late on the technology, fearing Tesla is creating a false sense of security among its customers that poses a risk to them and everyone else on the road. One reason this issue is popping up repeatedly in the U.S. is that other countries are far more stringent about permitting Tesla’s technology.

In June NHTSA escalated a probe that laid the preliminary groundwork for a potential recall. A formal (and extensive) information request on Autopilot and Full-Self Driving followed in August. 

Much of it focused on securing detailed company data over driver attentiveness when self-driving features were engaged, such as those collected by the cabin camera mounted above the rearview mirror.

No public records are available concerning Tesla’s subsequent response, as the company requested earlier this month the entirety of its submission be classified as confidential business information.

Last week, NHTSA reported, 11 people were killed in U.S. crashes involving vehicles that were using automated driving systems during a period from mid-May through September this year. Ten vehicles involved had been made by Tesla, though it is unclear from the data whether the technology itself was at fault or whether driver error might have been responsible.

Repeated false dawns

A decision by the Justice Department on the outcome of its criminal investigation into Autopilot was not expected any time soon, according to one of the Reuters sources, in part because it was competing with “two other DoJ investigations involving Tesla.”

One former U.S. attorney in Detroit that has prosecuted auto companies and staff in cases of fraud, Barbara McQuade, told the news service that investigators would have a high threshold for pursuing any potential case, such as uncovering black-and-white evidence of deliberate attempts by Tesla to mislead. 

Musk has always talked up his technology, but added important caveats that leave wiggle room. Last week, for example, he said that while FSD is “pretty close,” it’s not “quite ready” to drive without a human behind the wheel, returning to his age-old pledge first promised in April 2019 that the proverbial next year would finally bring the promised capability of fully autonomous driving.

Musk has admitted he was too optimistic, saying earlier this year he had been fooled by false dawns and can point to other companies that likewise predicted the technology would mature quicker.

For example, Ford invested in 2017 in self-driving startup Argo AI with the anticipation of bringing a robo-taxi to market by 2021, by its own account. It has now decided in conjunction with joint shareholder Volkswagen Group to cease further investments in favor of closing down the company. 

“Things have changed,” Ford CEO Jim Farley said on Wednesday. “Profitable, fully autonomous vehicles at scale are a long way off.”