Tesla Faces Potential Fraud Probe by the DOJ. Here's Why

The Department of Justice (DOJ) is investigating Tesla (TSLA) to determine if it committed securities or wire fraud by misleading consumers about its Autopilot self-driving technology, people familiar with the matter told Reuters.

Tesla's Autopilot and Full Self-Drive (FSD) systems for its electric vehicles (EVs) are not fully autonomous. While Tesla says drivers "must be in control of your vehicle, pay attention to its surroundings and be ready to take immediate action including braking," the DOJ is examining other statements made by the company and its CEO, Elon Musk, which may have suggested that the cars can drive themselves. 

One example Reuters gives is a video on Tesla's website shows a car using its Autopilot technology and states, "The person in the driver's seat is only there for legal reasons. He is not doing anything. The car is driving itself."

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"The probe, which is not evidence of wrongdoing, could result in criminal charges, civil sanctions, or no action," Reuters said. "Prosecutors are far from deciding how to proceed, one of the sources said, in part because they are sifting through voluminous documents Tesla provided in response to subpoenas."

This is hardly the first investigation into Tesla's Autopilot system. In April, the National Highway of Traffic Safety Administration (NHTSA) said it is looking into the company's late-2023 recall of more than 2 million vehicles that include the Basic Autopilot package.

Additionally, the Securities and Exchange Commission (SEC) is investigating the representations of Tesla's self-driving capabilities to investors, a source told Reuters. Both the DOJ and SEC declined to comment on the report.

Is Tesla stock a buy, sell or hold?

Wednesday's headlines have Tesla shares trading down more than 2% in intraday action, making it the worst Magnificent 7 stock so far. Longer term, the stock is down 30% for the year to date, pushing most analysts to the sidelines.

According to S&P Global Market Intelligence, the consensus analyst target price for Tesla stock is $181.73, representing implied upside of about 4% to current levels. Meanwhile, the consensus recommendation is a Hold.

Still, Wedbush analyst Daniel Ives has a Buy rating and $275 price target on Tesla, representing implied upside of more than 57% to current levels.

Ives recently called Tesla's approval for FSD in China "a key moment for Musk as well as Beijing at a time that Tesla has faced massive domestic EV competition in China along with softer demand." The analyst added that while "the long-term valuation story at Tesla hinges on FSD and autonomous, a key missing piece in that puzzle is Tesla making FSD available in China which is now a done deal."

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