Tesla Stock Plunges 5% As Elon Musk Faces Contempt For Violating SEC Deal

An errant tweet by Tesla Inc. CEO Elon Musk bragging his firm will produce “around” 500,000 vehicles this year saw the company’s stock drop by 5 percent after the U.S. Securities and Exchange Commission (SEC) asked a judge to hold Musk in contempt for making this statement.

In taking this legal remedy, the SEC said Musk violated a deal last fall in the wake of Musk’s failed bid to take his company public.

“Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people,” said the SEC in the court filing. The SEC was reacting to an “inaccurate” Feb. 19 tweet about production numbers of Tesla’s electric cars.

Previously, Musk tweeted -- and later revised -- projections about Tesla manufacturing numbers for the full-year 2019.

Musk tweeted Tesla will manufacture “around” 500,000 vehicles this year. Apparently realizing the inaccuracy of this claim, Musk four hours later tweeted he “meant to say” the company’s annualized production rate at the end of 2019 could be around 500,000 vehicles.

This meant a production rate of 10,000 cars per week. Total deliveries for 2019 are still estimated at 400,000, said Musk.

The SEC asked Musk to explain his tweet, and said in its court filing it took Tesla two full days to do so.

The SEC filing also says that “in response to the SEC’s February 20 request for information, Musk and Tesla state that, since Tesla’s Policy was implemented in December 2018, Musk’s tweets have been reviewed after their publication, but there is no suggestion that Musk has sought or obtained pre-approval of any tweet prior to publishing it.”

“For all the reasons stated, the SEC respectfully requests that the Court enter an order to show cause why Defendant Elon Musk should not be held in contempt of the Court’s October 16, 2018 Final Judgment. ”

The SEC’s close watch over Musk and his statement were triggered by that infamous episode in August 2018 where Musk tweeted he had enough money to take Tesla private. In its court filing alleged that by making this claim, Musk issued “false and misleading” statements, and failed to properly notify regulators of material company events.

In a wide-ranging deal, the SEC forced Musk to step down as chairman of Tesla, and ordered the company to pay a $20 million fine. As part of the settlement, Musk was also ordered to secure pre-approval from the SEC for future tweets.