Tesla is heading into multi-billion-dollar iceberg of its own making

Tesla’s ‘Full Self-Driving Supervised’ expansion is back firing as it exposes its shortcomings. Customers left without promised features are growing discontent and demanding to be compensated.

It’s turning into a multi-billion-dollar iceberg of Tesla’s own making.

In 2016, Tesla proudly announced that all its vehicles produced onward are equipped with “all the hardware for full self-driving,” which would be delivered through future software updates.

The automaker turned out to be significantly wrong about that.

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At the time, it was producing its electric vehicles with a hardware suite known as HW2, which it had to upgrade to HW3 because it couldn’t support self-driving (FSD) capability.

HW3 was produced in vehicles from 2019 to 2023 and Tesla switched to HW4 in 2024.

At first, CEO Elon Musk claimed that FSD software updates on newer HW4 cars would lag roughly 6 months behind updates to HW3 cars to make sure to deliver the promised self-driving capability to those who have been waiting and paid for the promised capabiltiy a long time ago.

That strategy barely lasted a few months. Tesla quickly started releasing new FSD updates to HW4 cars first and it now hasn’t released a significant update to HW3 cars in close to a year.

Tesla only admitted in January 2025 that HW3 won’t be able to support unsupervised self-driving. Musk claimed that Tesla would retrofit the computers, but there has been no word about it for 10 months.

Tesla customers are starting to be fed up.

The catalyst is Tesla’s current FSD expansion in international markets. Previously, Tesla’s FSD was limited to North America, but over the last year, the automaker has been expanding FSD to China and now Australia and New Zealand.

However, the expansion is back-firing as HW3 owners are starting to realize that they will never get what they paid for.

In Australia and NZ, Tesla only launched FSD on HW4 vehicles with no clear plan for HW3, which the automaker already admitted won’t support unsupervised self-driving. The automaker appears to have only adapted its latest version of FSD for HW4 to the Australian market.

To add to the insult, with the launch of FSD in Australia, Tesla started to offer FSD subcriptions for $149 AUD a month for both HW3 and HW3 cars despite the software not being available for HW3.

HW3 owners reached out to Electrek after seeing this in their app:

It’s unclear why would Tesla sell a subcription to something that doesn’t even exist, but it is not helping build confidence with customers.

To try to appease owners, Tesla started sending emails to Australia HW3 owners offering $5,000 discounts on new inventory vehicles when transfering their FSD package:

However, this offer is misleading in itself, as it is not actually specific to HW3 owners as the email leads people to believe.

A visit on Tesla’s Australia inventory website shows that Tesla is offering a $5,000 disounct on all inventory vehicles with FSD for any buyer:

Therefore, it has nothing to do with “loyalty”.

As we recently reported, thousands of Tesla owners have now joined a class action lawsuit in Australia over Tesla misleading customers with its self-driving promises.

It adds to similar ongoing lawsuits in the US and China.

With hundreds of thousands of FSD customers who paid up to $15,000 for package, Tesla is on the hook for billions of dollars in compensations or retrofits in the best-case scenario.

Electrek’s Take

We are seeing more people losing patience and it is only going to get worse.

There were a lot of interesting interactions on this post, which is pretty mild in my opinion. And yet, you see the usual Elon lemmings downplaying Tesla not delivering features it promised:

I don’t want to burst anyone’s bubble, but we need to be realistic here. If you are a HW3 owner and still think that Tesla is going to retrofit your up to 10-years-old car with a computer that is going to make self-driving, you are being delusional.

Tesla will have to end up compensating owners and at this point, I have serious doubts that it will do it by itself without being forced through courts.

Furthermore, it shouldn’t be just people who bought FSD. Tesla said that all cars had the hardware capable of self-driving whether people bought the software package or not. If that’s not true, it affects the resale value of the vehicle regardless of if someone purchased the package.

I have a fairly simple solution for Tesla to make it right.

Tesla needs to offer all HW3 owners a $5,000 loyalty discount, that goes on top of all other incentive program, when upgrading to a new car.

As for HW3 owners who bought FSD, which basically turned out to be an interest free loan to Tesla for years, the automaker needs to offer free FSD transfer and a $10,000 discount on a car upgrade.

While this might sound like a lot, I think it’s in line with the incredible liability that Tesla is facing from all the on going lawsuits.

On top of it, it will go a long way to regain the trust of long-time customers, which Tesla swindled by selling them features it simply can’t deliver.

The main reason why I think Tesla doesn’t want to do that is that it will likely have to do the same thing to HW4 owners in the next few years and that would be the death of the company.