Tesla's FSD Probe: 8,313 Violations, a 10% Drop & a 315x Valuation

The regulatory hammer is coming down, and Tesla just asked for more time to answer. The National Highway Traffic Safety Administration (NHTSA) has given the company a five-week extension to start addressing its defect probe into traffic violations. That buys Tesla until Feb. 23 to deliver its full response, but the clock is ticking on a mountain of data.

The scale of the problem is staggering. As of today, 8,313 records remain that require manual review for the FSD investigation. Tesla estimates it can process about 300 records per day, meaning this is a massive, time-consuming burden. This isn't a minor paperwork glitch; it's the core of a probe that could derail the entire FSD narrative.

The investigation's scope is what makes it so threatening. NHTSA is looking at an estimated 2.9 million vehicles equipped with the FSD system. That's a huge portion of Tesla's fleet, and the probe covers dozens of incidents where Teslas ran red lights, drove the wrong way, or crashed. The agency is also scrutinizing the system's ability to handle poor visibility, adding another layer of complexity.

This is a high-risk, high-cost burden. For a company counting on FSD to drive demand after a slump in deliveries, regulatory scrutiny of this magnitude is a direct threat. The probe adds to a pileup of queries from NHTSA, which Tesla says is "unduly burdensome." The bottom line is that this investigation creates massive uncertainty, a clear overhang on the stock, and a potential catalyst for stricter rules or penalties that could slow FSD's rollout and adoption.

Signal vs. Noise: Red-Light Runs, Wrong-Way Driving & 60% Jump

Let's cut through the regulatory jargon. The real signal here is a dangerous spike in documented failures. Since October, NHTSA has found at least 80 instances where Tesla's FSD system ran red lights or crossed into wrong lanes. That's a 60% jump from the roughly 50 violations cited earlier. This isn't just about paperwork; it's about cars making catastrophic errors on public roads.

The specific behaviors are alarming. We're talking about Teslas approaching intersections with red traffic signals, crossing double-yellow lines, and entering oncoming traffic. In at least six cases, these failures led to crashes, with four resulting in injuries. The system is not just misreading signals; it's causing accidents. This is the core safety risk that regulatory pressure is now focused on.

The bottom line is that Tesla is being asked to respond to this probe while already under fire from two other major information requests from NHTSA. This creates a massive resource strain. The company must now manage three simultaneous investigations, diverting engineering and legal teams from product development and customer support. For a stock already down 10%, this operational overload is a clear overhang that could delay responses, escalate costs, and further pressure the timeline for any FSD-related catalysts.

The Watchlist: Current Price, Volume & Valuation Pressure

The regulatory threat is now a tangible price tag. Tesla's stock has been hammered, dropping 10.5% over the last 20 days. That's a sharp move for a company trading at a stratospheric valuation. The market is pricing in risk, and the numbers tell the story of a valuation overhang.

Look at the multiples. Tesla trades at an EV/EBIT TTM of 315. That's a premium built on future FSD growth, not today's profits. For context, the average EV maker trades at a fraction of that. This valuation leaves zero room for error. Any stumble in the FSD narrative-whether from a recall, a fine, or sales restrictions-directly threatens that multiple.

The potential financial impact is severe. The probe covers an estimated 2.9 million vehicles equipped with the FSD system. If regulators force a recall or mandate software updates, the cost could be massive. Fines are another risk. More critically, any restriction on FSD sales or marketing would hit a key growth driver just as the company needs it to offset delivery plateaus. This isn't hypothetical; it's the core of a multi-billion dollar business line now under federal microscope.

Volume confirms the tension. The stock sees 49.47 million shares trading daily, a high turnover that signals active debate. With the stock down 10% and a 5-week deadline looming, this is a volatile setup. The market is watching for Tesla to either resolve the probe or face the financial fallout.

The bottom line: Tesla's premium valuation is now on a watchlist. The regulatory probe into 8,313 violations is a direct catalyst for a re-rating. Until that overhang clears, the stock faces pressure from both the P&L risks and the extreme sensitivity of its multiples.

Contrarian Take: The FSD Narrative is Already Priced In

Let's flip the script. The market has already punished Tesla for this risk. The stock is down 10.5% over the last 20 days. That's a sharp move that suggests the news of 8,313 violations and a 5-week deadline is being digested, not just starting. For a stock trading at a 315x EV/EBIT multiple, that drop represents a significant re-rating on known FSD scrutiny.

This probe is the latest chapter in a story that's been under the microscope for years. The FSD narrative has always carried regulatory overhang. The fact that NHTSA is now asking for data on 2.9 million vehicles equipped with the FSD system is a known risk, not a surprise. The market has been pricing in this friction for a while. The real shock would be if regulators didn't investigate.

Then there's the operational capacity. Tesla says it can process about 300 records per day. With 8,313 records left, that's a manageable workload over five weeks. The company has already asked for and gotten an extension. This isn't a crisis of capability; it's a crisis of timing and paperwork. The timeline is tight, but it's not impossible to meet.

The bottom line: The bear thesis assumes this probe is a new, unforeseen catalyst that will crush the stock. The contrarian view is that the stock has already paid for the risk. The valuation drop, the operational plan, and the years of regulatory pressure all point to a known quantity. Until the probe leads to a recall, a fine, or a sales ban, the narrative may be more noise than signal. Watch the stock's reaction to the Feb. 23 deadline. If it holds steady, that's the alpha leak.

Catalysts & What to Watch: The Feb. 23 Deadline

The bear thesis hinges on regulatory fallout. The first major catalyst is the five-week extension deadline of Feb. 23. Tesla must deliver its full response on the 8,313 records. A rushed or incomplete submission could be seen as non-cooperation, giving NHTSA more leverage. A thorough, well-structured response, however, might buy time and show good faith.

Watch for new enforcement actions or an expanded probe scope. The agency is already looking at at least 80 instances of red-light runs and wrong-way driving, a 60% jump. NHTSA's letter also probes whether the system can handle poor visibility. If the agency sends a follow-up request demanding more data on these specific safety concerns, it signals the investigation is deepening. That would be a clear negative signal for the stock.

Most importantly, monitor the stock price reaction. The market has already priced in a 10.5% drop over the last 20 days. The Feb. 23 deadline is a binary event. If Tesla meets it and NHTSA's next move is merely a request for clarification, the overhang may lift. But if regulators announce a new enforcement action, a recall, or a sales restriction, the stock could face another sharp leg down. The high turnover rate-49.47 million shares daily-means any negative news will be quickly priced in. This is the setup for the next major move.