In a decision on Monday, Judge Juliet Cox of the state Office of Administrative Hearings said the accusations by California's Department of Motor Vehicles would if true support an enforcement action against Tesla.
The DMV had in July 2022 accused Tesla of misleading consumers about vehicles with Autopilot and Full Self-Driving technology, saying they "could not at the time of those advertisements, and cannot now, operate as autonomous vehicles."
It sought remedies that could include suspending Tesla's license to sell vehicles in California, and requiring Tesla to make restitution to vehicle owners.
Neither Tesla nor its lawyers immediately responded to requests for comment. A DMV spokesman had no immediate comment.
On May 15, a San Francisco federal judge rejected Tesla's bid to dismiss a proposed nationwide class action claiming it misled consumers into believing their vehicles would soon have self-driving capabilities.
Tesla, based in Austin, Texas, has also for many years faced federal probes into whether its self-driving technology might have contributed to fatal crashes.
Federal prosecutors are separately examining whether Tesla committed fraud by misleading investors about self-driving, according to three people familiar with the matter.
Tesla has said Autopilot lets vehicles steer, accelerate and brake in their lanes, and Full Self-Driving lets vehicles obey traffic signals and change lanes.
But it has admitted that neither excuses drivers from paying attention to the road, and the technologies "do not make the vehicle autonomous."
In her five-page decision, Cox said it was premature to dismiss the DMV case before a formal hearing. Tesla had said a hearing was unnecessary because Cox already had enough documents from which to rule.
California is Tesla's largest U.S. market and accounts for about 10% of global deliveries, but year-over-year sales have fallen for two straight quarters.
Tesla's electric-vehicle market share in the state fell to 55.4% in the first quarter from 61.8% a year ago.
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