Nathan had been asked by the SEC to hold Musk in contempt over a February 19 tweet where the regulator said he improperly posted material information about Tesla’s vehicle production outlook without first seeking approval from company lawyers.

The SEC said pre-approval had been a core element of the October 2018 settlement, which resolved a lawsuit over Musk’s tweet last August 7 that he had “funding secured” to take Tesla private at US$420 per share.

That settlement called for Musk to step down as Tesla’s chairman, and levied US$20 million civil fines each on Musk and the Palo Alto, California-based company.

Legal experts had said Musk could have faced penalties as severe as removal from Tesla’s board or as chief executive if held in contempt.

But at Thursday’s hearing, the SEC stopped short of recommending such sanctions.

That lifted a potential drag on Tesla’s share price, which recouped some early losses stemming from its Wednesday night report of lower-than-expected vehicle deliveries.

The shares closed down 8.2 per cent.

SEC lawyer Cheryl Crumpton said if Musk were held in contempt, the regulator might ask Nathan to require regular reports about his oversight by Tesla lawyers, including whether they were vetting his statements and if not why.

Noting that Musk had called his US$20 million fine “worth it,” she also said higher fines for future violations might be needed to ensure that further backsliding would be “not worth it”.

Crumpton also faulted what she called Tesla’s “troubling” conduct. “Tesla still appears to be unwilling to exercise any meaningful control over the conduct of its CEO,” she said.

The SEC did not accuse Tesla of contempt.

Musk’s lawyer, John Hueston, countered that the “ambiguity” of the settlement made further punishment for his client unfair.

“There simply is not a clear enough standard to use the hard penalty of contempt,” he said.

Musk sat quietly with his lawyers, sometimes staring down at paperwork, during oral arguments.

The battle concerns a tweet that Musk sent to his more than 24 million Twitter followers: “Tesla made 0 cars in 2011, but will make around 500k in 2019,” meaning 500,000 vehicles.

Four hours later, Musk corrected himself, saying annualised production would be “probably around” 500,000 by year end, with full-year deliveries totalling about 400,000.

The SEC called the earlier tweet “obviously different” from Tesla’s January 30 outlook, when it targeted annualised Model 3 production exceeding 500,000 as soon as the fourth quarter, and projected 360,000 to 400,000 vehicle deliveries this year.

Musk’s lawyers countered that the earlier tweet merely restated a forecast he had given on January 30, and that the SEC conceded during settlement talks that Musk did not need pre-approval for all tweets about his company.

Tesla, which built its reputation on luxury cars, has faced several production challenges with its Model 3 sedan, which it is counting on to reach the mass market, recently offering a version starting at US$35,000.

On Wednesday night, Tesla repeated its January 30 vehicle delivery forecast, but said first-quarter deliveries had fallen 31 per cent from the prior three months to about 63,000.

The “funding secured” tweet had sent Tesla’s share price up as much as 13.3 per cent. Musk’s privatisation plan was at best in an early stage, however, and financing was not in place.

The legal battle has not stopped Musk from being an outspoken critic of the SEC.

Since it began last September, he has labelled the SEC the “Shortseller Enrichment Commission,” recalling his attacks on investors who sell Tesla stock short, and told CBS’s 60 Minutes he did not have respect for the SEC.

And in the early morning of February 26, after the SEC filed its contempt motion, Musk tweeted: “Something is broken with SEC oversight.”

As he prepared to enter the courthouse. Musk told reporters: “I have a great respect for the justice system.”

Asked whether he also respected the SEC, Musk laughed, before turning to go inside.