Elon Musk’s lawyers have fired back at the Securities and Exchange Commission, arguing that the Tesla CEO did not violate the terms of his September settlement with the agency—and that the agency’s attempt to gag Musk violates the First Amendment. The SEC has asked a federal judge to hold Musk in contempt for tweeting out a projection of Tesla’s 2019 car production without first clearing the tweet with Tesla’s lawyers.
The core disagreement in the case is over whether Musk’s February 19 tweet stating “Tesla made 0 cars in 2011, but will make around 500k in 2019” was material—legal jargon for information that’s significant enough to affect Tesla’s stock price. If that 500k figure is material, then Tesla’s policy required Musk to clear the tweet with his lawyers. Failure to do so would be a violation of Musk’s deal with the SEC, which settled a previous lawsuit over another tweet containing allegedly inaccurate information.
But if Musk’s 500k tweet is not material, as Musk’s lawyers claim, then Musk did nothing wrong. Musk’s lawyers argue Tesla’s policy gives Musk discretion to decide which tweets are material and that Musk reasonably determined that this February 19 tweet was non-material. They argue that Musk’s “around 500k” figure wasn’t providing new information to the market but rather reiterating information Tesla had disclosed previously.
Musk’s lawyers pointed to a January regulatory filing in which Tesla stated that “we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.” In an earnings call later that month, Musk stated that opening a new factory in Shanghai would “allow us to get to the 10,000-vehicles-a-week rate, or very close to it, by the end of the year.”
These figures aren’t quite the same, as the SEC pointed out in its original filing. There’s a difference between producing 500,000 vehicles in 2019 and reaching an annualized production rate of 500,000 vehicles (in other words, 10,000 vehicles per week) by the end of 2019. Moreover, Tesla’s earlier disclosures actually said that Tesla would achieve that rate “between Q4 of 2019 and Q2 of 2020.”
But Musk’s lawyers argue that Musk was speaking loosely. They say that Musk’s statements were close enough to Tesla’s earlier disclosures that Musk could have reasonably believed that he wasn’t providing the markets with new information.
“Musk’s statement that Tesla would make ‘around 500k’ ‘cars’ in 2019 was within previously disclosed ranges,” the filing states. It also notes that the tweet, which occurred after the markets were closed for the day, does not appear to have affected Tesla’s stock price.
“Reasonable investors are expected to use caution in evaluating such forward-looking statements, which carry with them a strong presumption of immateriality,” Musk’s lawyers write.
The SEC has argued Tesla’s policy required Musk to get pre-approval for any tweet that could potentially be material. But the Musk camp argues that such a broad interpretation of the deal would run contrary to the First Amendment.
“As the SEC interprets and seeks to enforce it, the Order’s injunction is a de facto gag on a broad spectrum of statements implicating Tesla,” Musk’s filing states. That, the lawyers say, amounts to an “unconstitutional power grab.”
The SEC now has a week to respond to Musk’s arguments. A week later, both sides will have a chance to seek an evidentiary hearing. At some point after that, Judge Alison Nathan will rule on whether Musk should be held in contempt.
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