By David Shepardson

WASHINGTON (Reuters) – Tesla Inc said it would recall 362,000 U.S. vehicles to update its Full Self-Driving (FSD) Beta software after U.S. regulators said on Thursday the driver assistance system did not adequately adhere to traffic safety laws and could cause crashes.

The National Highway Traffic Safety Administration said the Tesla software allows a vehicle to “exceed speed limits or travel through intersections in an unlawful or unpredictable manner increases the risk of a crash.”

Tesla will release an over-the-air (OTA) software update free of charge, and the electric vehicle maker said it is not aware of any injuries or deaths that may be related to the recall issue. The automaker said it had 18 warranty claims.

Tesla shares pared losses to trade down 0.4% at $213.46 on Thursday afternoon. It was among the most actively traded stocks on U.S. exchanges.

This is a fresh setback for Tesla’s driver assistance system, which faces growing regulatory and public scrutiny. Chief Executive Elon Musk has repeatedly missed his own targets to achieve self-driving capability, which he has touted as a potential cash cow.

The recall comes less than two weeks before the company’s March 1 investor day, during which Musk is expected to promote the EV maker’s artificial intelligence capability and plans to expand its vehicle lineup.

While Tesla’s Autopilot feature assists with steering, accelerating and braking for other vehicles and pedestrians within its lane, the company says FSD is a more advanced system “designed to provide more active guidance and assisted driving” under active supervision of the driver.

Tesla reported having $2.9 billion in deferred revenue at the end of 2022 related to “access to our FSD features, internet connectivity, free Supercharging programs and over-the-air software updates primarily on automotive sales.”

The automaker could not immediately be reached for comment, but Musk on Twitter said that the word “recall” for an over-the-air software update is “anachronistic and just flat wrong!”

‘ALMOST THERE’

In the past, Musk has often touted the technology.

“Our published data shows that improvement in … safety statistics, it’s very clear. So we would not have released the FSD Beta if the safety statistics were not excellent,” he said during a call with analysts in January.

Musk has positioned Full Self Driving technology as one of several artificial intelligence initiatives at Tesla.

Last October, he said “we’re almost there. And then, of course, we’ve got to prove it to regulators and get the regulatory approvals, which is outside of our control.” He also said cars operating in FSD mode were safer than those with it not operating.

The recall covers 2016-2023 Model S and Model X vehicles, 2017-2023 Model 3, and 2020-2023 Model Y vehicles equipped with FSD Beta software or pending installation.

NHTSA asked Tesla to recall the vehicles, but the company said despite the recall it did not concur in NHTSA’s analysis. The move is a rare intervention by federal regulators in a real-world testing program that the company sees as crucial to the development of cars that can drive themselves. FSD Beta is used by hundreds of thousands of Tesla customers.

NHTSA has an ongoing investigation it opened in 2021 into 830,000 Tesla vehicles with driver assistance system Autopilot over a string of crashes with parked emergency vehicles. NHTSA is reviewing whether Tesla vehicles adequately ensure drivers are paying attention. NHTSA said on Thursday despite the FSD recall its “investigation into Tesla’s Autopilot and associated vehicle systems remains open and active.”

Tesla said in “certain rare circumstances … the feature could potentially infringe upon local traffic laws or customs while executing certain driving maneuvers.”

Possible situations where the problem could occur include traveling or turning through certain intersections during a yellow traffic light and making a lane change out of certain turn-only lanes to continue traveling straight, NHTSA said.

NHTSA said “the system may respond insufficiently to changes in posted speed limits or not adequately account for the driver’s adjustment of the vehicle’s speed to exceed posted speed limits.”

Last year, Tesla recalled nearly 54,000 U.S. vehicles with FSD Beta software that may allow some models to conduct “rolling stops” and not come to a complete stop at some intersections, posing a safety risk, NHTSA said.

Tesla and NHTSA say FSD’s advanced driving features do not make the cars autonomous and require drivers to pay attention.