Actually, on second thought (and a second cup of coffee), the position is actually reasonable. CA doesn't tax intangible assets (so SW that one downloads) but will tax SW that comes on a disc. FSD software is effectively delivered with the car when the car is purchased. The activation being over the air doesn't change how the SW was originally delivered. I'm a CPA, though not a sales tax specialist, but I had the displeasure of filing a few dozen voluntary disclosures back in the day.
I think that the FTB position has a good shot of being supported in court.