For years, Tesla sold millions of cars with a promise attached: Pay extra for Full Self-Driving, and your vehicle would eventually drive itself. Software updates would get it there. The hardware was ready.
On April 23, Elon Musk finally said out loud what Tesla owners had suspected for a long time. And the fallout is only beginning.
What Musk said on the earnings call
“Unfortunately, Hardware 3, I wish it were otherwise but Hardware 3 simply does not have the capability to achieve unsupervised FSD,” Musk said on Tesla’s Q1 2026 earnings call on April 23. He identified the hardware’s “memory bandwidth” as the “chokepoint,” according to the earnings call transcript.
That is a direct admission that the hardware installed in millions of Tesla vehicles since early 2019 cannot deliver what customers paid for. Not because of a software limitation that can be patched. Because of the physical chip itself.
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Musk’s proposed solution: build “microfactories” in major cities to retrofit HW3 vehicles with a new computer and camera system. He also said Tesla plans to convert all HW3 cars to HW4, because “that’s what enables them to enter the Robotaxi fleet and have unsupervised FSD,” the transcript confirmed. He mentioned a “discounted trade-in” program but offered no further details on cost, timeline, or scope.
Why this matters to millions of Tesla owners
Tesla began installing Hardware 3 in early 2019 and sold it to customers as the system that would eventually support full autonomy through over-the-air software updates. Owners paid thousands of dollars above the base vehicle price to access Full Self-Driving, trusting that the hardware was sufficient for the feature to eventually work.
Musk first conceded that HW3 was not sufficient in January 2025, according to The Verge. But the April 23 earnings call was the most direct public statement yet, and it came more than six years after Tesla started selling vehicles with the hardware.
For owners, the admission reopens every uncomfortable question. What exactly did they pay for? When will the retrofit happen? Who covers the cost? And can they trust the next promise Tesla makes about autonomy?
The legal pressure is mounting
The admission lands in the middle of active litigation. Tesla owners have filed numerous class action lawsuits claiming Musk misled them for years about the capabilities of the Full Self-Driving system, according to Electrek.
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Musk’s language on the earnings call was unambiguous enough to become exhibit material. Saying publicly that HW3 “simply does not have the capability” to achieve unsupervised driving directly supports the claims of customers who say they were sold a feature their hardware could never deliver.
California regulators have previously argued that Tesla’s vehicles could not do what buyers were led to believe, and that the company’s marketing created a misleading impression. The April 23 statement makes that argument harder to contest.
Key facts from Tesla’s HW3 Full Self-Driving situation:
- Tesla began installing Hardware 3 in early 2019, selling it as future-proof for Full Self-Driving autonomy, according to Futurism.
- Musk first admitted HW3 was insufficient in January 2025, more than six years after the hardware launched, The Verge reported.
- On the April 23 Q1 2026 earnings call, Musk said HW3 “simply does not have the capability to achieve unsupervised FSD,” citing memory bandwidth as the chokepoint, per the earnings transcript.
- Tesla plans to build microfactories in cities to retrofit HW3 vehicles with HW4 hardware, Musk said on the call.
- A discounted trade-in program was mentioned but no timeline, cost structure, or eligibility details were provided.
- Multiple class action lawsuits have been filed by HW3 owners alleging years of misrepresentation, according to Electrek.
- Tesla’s Q1 2026 results showed profitability remains thin amid plummeting European sales, Futurism reported.
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Why the retrofit plan raises more questions than it answers
Musk framed the microfactory approach as a solution. But the logistics of retrofitting millions of vehicles across major metropolitan areas are enormous. Setting up new production lines in cities is expensive. Tesla has not provided a timeline. And the company’s Q1 2026 earnings showed profitability is as thin as ever following years of declining revenues in key markets.
Electrek pointed out that the cost of building dedicated urban retrofit facilities would be substantial, and the plan as described leaves core questions unanswered about who pays, how long it takes, and whether current HW3 owners are legally entitled to the upgrade at no charge.
There is also a credibility dimension. Musk has made and revised autonomy promises repeatedly since 2016. Promising a widespread hardware retrofit carries the same structural risk: it is ambitious, expensive, and dependent on execution that Tesla has repeatedly deferred.
What it means for Tesla’s autonomy story
Tesla’s valuation has long included a premium for the autonomous driving and robotaxi opportunity. If Full Self-Driving requires a hardware retrofit for millions of existing vehicles before the robotaxi fleet can scale, the timeline for that revenue is pushed further out. And the cost of the retrofit program, however it is structured, adds a new financial liability that was not previously priced in.
For investors, the most important question is not whether Tesla can eventually deliver unsupervised FSD. It is whether the path there is as clean as the company’s stock price has assumed. Musk’s April 23 admission suggests it is not. The hardware gap is real, the legal exposure is real, and the retrofit plan is still largely undefined.
Tesla has built one of the most loyal customer bases in the auto industry. But loyalty has limits. And the owners who paid thousands of dollars for a feature their cars cannot deliver are now watching to see whether the company’s solution matches the scale of the problem it created.
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