Tesla hits a red light

Tesla’s stock may be on autopilot, but California just reminded everyone that the company’s cars definitely aren’t.

A California judge ruled that Tesla used deceptive marketing around its Autopilot and Full Self-Driving systems. If Tesla doesn’t fix the marketing issues within 60 days, the California Department of Motor Vehicles says it will move forward with a 30-day suspension of its licenses to sell and manufacture cars in the state.

Tesla’s branding suggested its cars could drive themselves, when in reality Autopilot and Full Self-Driving still require an alert human behind the wheel. Even after Tesla rebranded the feature as “Full Self-Driving (Supervised),” the judge wrote that a reasonable consumer could believe the car operates autonomously, a claim that is technologically and legally false. Tesla fell 4.62% today.

Right as things were going great…

The ruling comes a day after Tesla hit all-time highs, fueled by optimism about CEO Elon Musk’s long-promised robotaxi rollout.

Tesla has been testing driverless cars in Austin, and Musk says unsupervised driving is “pretty much solved.” He expects robotaxis to be operating in Austin by year’s end, alongside expansions in Florida, Nevada, Arizona, and Texas.

The hype has carried the stock well past its peers: Tesla has surged 25% since November lows, outpacing the Bloomberg Magnificent Seven Index’s 6% gain in the same period. It now trades at a sky-high 223x forward earnings, towering over both its own five-year average of 94x and the Mag 7’s 31x average. Shares are up 15.7% YTD.

Robotaxi-driven euphoria

Despite the recent run-up, 2025 hasn’t been smooth for Tesla. It has faced political backlash tied to Musk’s relationship with Trump and far-right European leaders, and intensifying competition from cheaper EVs in Europe and China. Shares fell 36% in the first quarter alone.

By November, US sales fell to a near four-year low. The end of the $7,500 federal EV tax credit hurt demand across the industry, and Tesla’s attempt to compensate with lower-priced “Standard” Model Y and Model 3 trims backfired. Sales dropped 23%, and analysts say the new versions are cannibalizing Tesla’s higher-margin models.

Layer on today’s ruling, and it’s fair to wonder whether the stock’s rally is more short-term hype than long-term momentum.

Then again, not everyone is bearish: Mizuho raised its price target to $530 from $475 this week, keeping a Buy rating on the belief Tesla’s AI and robotaxi narrative still has legs.—SY