Tesla (NASDAQ: TSLA) is facing what could be one of the most expensive technical and legal showdowns ever in the auto industry. Tesla may have to swap the autonomous vehicle computers in around 4 million cars or compensate their drivers — a bill that could outweigh any previous autonomous vehicle recall.
In 2016, Tesla stated that all cars made from then onward had “all the hardware needed for full self-driving capability.” Elon Musk, CEO, floated the idea, confidently saying that Tesla cars would be issued software updates that would enable them to become self-driving “robotaxis” with Level 4 or Level 5 autonomy (meaning they can operate without a human driver at all).
However, nearly 10 years ago, that vision remained unfulfilled. Now, it is in the first line of fire, attracting criticism and legal friction due to the acknowledged failure of its hardware.
HW3 Not Enough for Full Autonomy
Tesla originally shipped its vehicles with HW2.5 self-driving computers, which were already rendered obsolete upon delivery. The company then launched the HW3, insisting this system would achieve full autonomy. Many Tesla buyers of the Full Self-Driving (FSD) package, a software bundle adding up to $15,000, were told that they were already equipped with the necessary hardware.
Tesla has been upgrading the existing HW2.5 cars with HW3 computers, but only for people who pre-ordered their FSD. It was then, in 2023-2024, that Tesla unveiled an even more advanced system, HW4, boasting that it would concentrate on making FSD work well on HW3 before moving away to HW4.
But in early 2025, Musk publicly acknowledged what critics had been suspecting for a long time: HW3 computers simply aren’t powerful enough to run unsupervised self-driving Teslas.
Over 500,000 Owners Eligible for Retrofits — Or More
Although Musk said that he is “encouraged that not that many people bought the FSD package,” it’s been confirmed by Tesla that by the end of 2022, almost 500,000 North American drivers were part of the FSD beta program. Taking global numbers into account, the number of HW3-equipped autos with FSD surely is well over 500,000.
Tesla, meanwhile, is faced with the costly proposition of retrofitting those vehicles with HW4 computers. Coupled with the cost of each advancement, which can hit $1,000 and above, the retrofit program will consume over $500 million, and this will just be the beginning.
Legal Pressure and False Advertising Claims
Tesla’s problems don’t stop with FSD customers. The company has repeatedly told its users since 2016 that their cars were equipped for complete autonomous drive courting if they purchased the FSD pack. That statement, now proven to be untrue, could lead to a myriad of legal actions or make demands for damages.
In 2022, a judge ordered that Tesla had to upgrade a customer’s hardware for use with the FSD subscription for free after it was established that the hardware to access the features that the subscription was supposed to unlock, even though the customer did not purchase it. This established a precedent that could be relied upon by millions of HW3 vehicle owners who were misled that their vehicles were “robotaxi-ready.”
Over the years, Tesla’s sales pitch included outlandish statements – such as Musk’s declaration in 2019 that Tesla cars were “appreciating assets” because of their expected future self-driving value. That notion is now clearly shown to be trash. Indeed, cars with obsolete hardware can be valued far less than said.
By taking away language related to hardware readiness from Tesla’s website in 2024, that was likely a liability limit piece, but for the tens of millions of pre-existing HW3 owners, the damage may already have been done.
For Tesla, the next phase won’t just be about innovation — it will be about accountability.
