With crashing sales, plummeting profits, vehicle launches that flopped so badly they’re openly mocked in the street, a glacially slow Robotaxi rollout, and the loss of its monopolistic hold on the EV market, Tesla is on a generational downward spiral. But you wouldn’t know that from its rhetoric, or even its share price. It’s almost like reality doesn’t matter. However, that might change soon, as Musk has just admitted something that could not only put the final nail in Tesla’s financial coffin but also destroy the myth that props up its insane value. You have probably seen this news plastered everywhere by now, but Musk has confessed that, despite his previous claims, HW3 can’t achieve full autonomy, and millions of customers who bought a car with the promise that it will one day drive itself will need to upgrade. The implications of such a damning admission go a lot deeper than you might think.
But, before we dig into everything, let’s quickly recap how the whole mess started.
Way back in 2017, Tesla proudly proclaimed that it sold all its vehicles with “all the hardware necessary for full self-driving capability”. Owners were promised that, at some point down the line, the only thing it would take is a software update, and their car would suddenly be able to drive itself — no human input required. In short, Musk promised that the HW2.5 computer and sensor suite installed in all sold Teslas would one day be capable of full autonomy.
But in 2019, that narrative began to fall apart. Tesla launched its updated HW3, which had a substantially more powerful computer. Why? Well, the self-driving AI Tesla had developed was simply too large to run on the HW2.5 computer. Musk and Tesla had flat-out lied about its capability. All new Teslas going forward would have HW3, and Musk rolled out a free upgrade program to anyone who bought a HW2.5 Tesla with the FSD (Full Self-Driving) package. But anyone who wanted to upgrade that hadn’t bought FSD was expected to shell out $1,500 (later discounted to $1,000).
Then, even worse, this entire debacle repeated itself. In early 2023, Tesla launched its HW4 computer, which again was dramatically more powerful than the previous generation, with eight times the memory bandwidth! It was widely known that HW3 simply didn’t have the power for full autonomy, and in January 2025, Musk finally admitted to it.
There were some rumours that a kind of ‘FSD lite’ software would be available for HW3 vehicles. But now, Musk has fully confirmed that it’s not happening. During a recent earnings call, Musk confessed that HW3 can’t cut the mustard. “Unfortunately, Hardware 3 — I wish it were otherwise — but Hardware 3 simply does not have the capability to achieve unsupervised FSD.” His solution is a rinse and repeat from last time. “I do think over time its gonna make sense for us to convert all HW3 cars to HW4, because that’s what enables them to enter the Robotaxi fleet and have unsupervised FSD,” Musk said before he proposed setting up ‘microfactories’ to convert Tesla’s fleet.
But what Musk failed to mention is the sheer scale of such an operation, because Tesla has sold a lot more cars since 2019.
Electrek estimates that there are roughly four million Teslas with HW3. That is roughly eight times the number of Teslas that were fitted with HW2.5! An HW4 upgrade includes not just a much more capable computer, which in the current chip market will be substantially more expensive than the HW3 computer, but also upgrading the camera suite FSD uses. There will also be significant overheads for these ‘microfactories’ needed to process the sheer volume of upgrades.
Tesla sold those vehicles with the explicit promise that they would one day soon drive themselves. To avoid running foul of fraud laws, Tesla will either have to upgrade all these vehicles at its own expense (which Musk has hinted towards) or compensate these owners.
So, how much will that cost Tesla?