The California Department of Motor Vehicles has approved Mercedes-Benz's automated driving system on designated highways under certain conditions without the active control of a driver.
California is one of Tesla's largest markets, accounting for 16 percent of the automaker's global deliveries last year, according to Reuters calculations.
But Mercedes beat Tesla to become the first automaker to receive authorization to sell or lease cars with a Level 3 automated driving system to the public in California. Earlier this year, the German automaker also received an approval to deploy automated driving systems on Nevada's roads.
The approval was granted to Mercedes' Drive Pilot system that allows drivers to legally take their eyes off the wheel but they must be available to resume control if needed.
The system can only operate on highways during daylight at speeds not exceeding 40 miles (64 km) per hour, the DMV said.
Mercedes said in a statement it will make the automated driving system available in the U.S. as an option for its S-Class sedan and EQS SUV vehicles.
The first deliveries for these models are expected later this year.