Why Tesla stock is sliding 3% after hitting new highs earlier in the day
Tesla stock came under pressure on Wednesday after touching an all-time high earlier in the session, as investors reacted to fresh regulatory scrutiny in California that could complicate the company’s ambitions for self-driving technology.
The stock was down more than 3% at around $476, retreating from record levels reached earlier in the day.
The pullback follows a sharp rally in recent months that pushed Tesla to new highs, fueled largely by optimism around robotaxis, artificial intelligence and robotics.
California DMV flags marketing of driver assistance systems
The immediate catalyst for Wednesday’s decline seems to be an announcement from the California Department of Motor Vehicles on Tuesday, which said Tesla violated state law by using potentially misleading terms such as “Autopilot” and “Full Self-Driving” to describe its driver assistance features.
“We’re really asking Tesla to do their job, as they’ve done in other markets, to properly brand these vehicles,” Steve Gordon, director of the California DMV, told reporters.
He added in a statement that the company can take “simple steps” to resolve the issue permanently.
The DMV said Tesla could have faced a suspension of both its manufacturing and dealer licenses for 30 days.
Instead, the regulator opted not to pursue a manufacturing suspension and granted Tesla 60 days to take corrective action on its marketing language.
Failure to do so could result in the suspension of Tesla’s dealer license in the state.
Focus on terminology, not technology
The issue centres on how Tesla markets its driver assistance systems rather than the underlying technology itself.
Tesla’s Full Self-Driving system is classified as a Level 2 autonomous driving system, which requires drivers to remain attentive and ready to take control at all times.
By contrast, Level 3, 4 and 5 systems allow drivers to disengage from active driving to varying degrees.
The DMV said changes required to address the issue could be relatively straightforward, such as altering marketing practices and branding language.
Tesla is currently testing fully autonomous robotaxis in California with safety drivers seated in the passenger seat.
The company also launched a self-driving taxi service in Austin, Texas, in June, where vehicles still operate with a safety monitor in the front passenger seat.
Tesla Chief Executive Officer Elon Musk has said he believes the company can safely remove the safety monitor by the end of the year.
A stunning rally meets regulatory reality
The regulatory setback comes after a dramatic recovery in Tesla’s share price during the second half of the year.
The stock closed at a record $489.88 on Tuesday and is up 121% from its low in early April.
That rebound marked a sharp turnaround from earlier in 2025, when Tesla shares had plunged more than 50% from their December 2024 peak amid falling vehicle sales, tariff concerns and volatility linked to Musk’s political profile.
Investors have increasingly shifted their focus away from Tesla’s automotive business toward its longer-term bets on self-driving technology, robotaxis and humanoid robots, which markets see as the primary growth drivers heading into 2026.
Analysts see limited business impact
Goldman Sachs reiterated a Neutral rating on Tesla with a $400 price target, which sits below the stock’s recent trading levels.
Analyst Mark Delaney said the firm does not expect disruption to Tesla’s California business, noting that the company has previously adjusted or rebranded advanced driver assistance features in response to regulatory concerns.
Tesla also said in a post on its X social media account that it expects sales in California to continue uninterrupted despite the DMV’s action.
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