Tesla Shares Rise after Lawsuit Settlement

Shares of Tesla Inc increased by nearly 18 percent as chief executive Elon Musk settled a lawsuit that had threatened to force him out of his position and said a surge in third quarter production had pushed it to the verge of profitability.

Tesla supporter cheers at the sign of a manufacturing jump while business analysts said the company needed to fulfill the spirit of the settlement by appointing a strong independent chair and new directors.

The electric carmaker’s shares slipped last week after the US Securities and Exchange Commission accused the CEO of securities fraud and sought to ban him from the company leadership, indicating a long drawn out fight that could have been able to undermine Tesla’s operations and ability to raise capital.

Instead, under a settlement that was announced over the weekend, Tesla and Musk will pay $20 million each to the regulator and Musk will step down as chairman but will stay as CEO, keeping one of America’s best-known corporate entity in place.

In a signal of manufacturing process boost, Musk said through an email to employees on Saturday said that the company was “very close to achieving profitability.” He added that “to be certain, we must execute really well tomorrow.” Sunday was the last day of the quarter.

According to a separate report on Monday, the automaker had produced 53,000 of its Model 3 sedans in the third quarter, higher than 28,578 in the previous three months and delivering a promise in August that it would produce 50,000 to 55,000 of the cars. It produced about 80,000 vehicles in total, according to the new report.

Tesla did not issue a comment.

Relief at the settlement of the lawsuit pushed and ended up with the largest one-day gain in Tesla shares in longer than five years.

“The stock was down so much on Friday because it was unclear if he would remain with the company at all given what the SEC was pushing for,” said Garrett Nelson of CFRA Research. “A $20 million fine is very small… allows him to stay there and also introduces some healthy governance measure.

Musk had garnered legions of supporters for his bold approach toward business and tech. He has used his 23 million followers on Twitter to promote Tesla, his tunnel venture called Boring Co, and his rocket business SpaceX.

However, the claim on August 7 that he had the funding to take Tesla private, and a subsequent ditching of the plan, stunned Wall Street and came amid public appearances which saw Musk smoke marijuana live on a radio show and call a British diver in the Thai cave rescue as “pedo.”

As part of the settlement with the SEC, Tesla will also choose an independent chairman and two independent directors, responding to calls on Wall Street to relieve the pressure on Musk and offer more balance in the carmaker’s management.

“This is one of the best cases for appointing an independent chair we have seen in a while,” said Courteney Keantinge, who is the research director for proxy adviser Glass, Lewis & Co. “His behavior hasn’t been great for a while. And I think this kind of behavior has a ripple effect, when there isn’t steady leadership at the top.”

According to lawyers, the settlement and the size of the fine might give more ammo to short-sellers chasing after separate cases against Musk for manipulating company shares through the August 7 tweet, as well as to an investigation by the Justice department.

However, several seasoned litigators also said that, while the DOJ investigation is separate, the SEC’s settlement might signal the end of official action against Tesla and Musk.

“The standard of proof for any potential criminal charge is higher than that of a civil case, which the SEC had,” said Jay Dubow, who is a former branch chief in the SEC’s enforcement division. “It’s possible that the DOJ investigation does not result in any criminal charges at least in part because the DOJ could determine that the SEC’s action resolved the matter and that no further governmental action is required.”

Neither Tesla nor Musk admitted or denied the SEC’s findings under the settlement, which still must be given approval by the court.

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