LEILA FADEL, HOST:
Jury selection begins today in a San Francisco federal court where Tesla and its CEO, Elon Musk, are on trial.
A MARTÍNEZ, HOST:
Yeah, seems a series of posts on Twitter in 2018 has gotten Musk in hot water with shareholders of the electric car company. They claim his statements cost them a lot of money.
FADEL: Lora Kolodny is a tech reporter with CNBC who's been following this story. And she joins me now from San Francisco. Welcome.
LORA KOLODNY: Thank you so much for having me.
FADEL: OK, Lora, break down why Tesla and Elon Musk are on trial for us.
KOLODNY: So I'm sure you remember in 2018, Elon Musk caused a lot of excitement when he tweeted that he was considering taking Tesla private at $420 per share, and he had funding secured to do so. Some people kind of took that as, like, a cannabis joke. And other people took it more seriously. And after that, Tesla shares spiked on the news of a possible deal. Trading was halted, and then trading was very volatile for several weeks after that. And investors who bought Tesla stock at pretty elevated prices at that time later sued, saying that they lost money after the shares declined. And it became clear that Musk had not exactly secured funding.
FADEL: So could Musk face serious consequences for his tweets?
KOLODNY: So the judge and jury are going to have to decide whether Musk's tweets had a material effect on the stock price and whether investors were relying on his tweets and statements to make their trading decisions. And then if there were any damages, they'll have to sort of figure out who should be liable to pay and what level of damages. That's one thing. I'm sure it won't - if Musk and Tesla lose, it probably won't, you know, break his bank, but the SEC would feel very vindicated. You probably recall Musk and Tesla already each paid a $20 million fine to the SEC over the tweets. The financial regulators had charged Musk with civil securities fraud and struck this settlement agreement. And Musk has been unhappy about it ever since.
If he prevails, on the other hand, you know, he'll succeed in clearing his name and making the SEC look badly for their prior charges and then for all the ongoing investigations to see if Elon Musk and Tesla have been in compliance with the terms of that settlement agreement. So no matter the outcome, this verdict could be appealed. And it's also possible that this case could settle out. But I see Musk as a risk taker, and I think he will keep fighting to try to clear his name and, frankly, to get revenge on the regulators.
FADEL: How are Tesla investors reacting to the trial?
KOLODNY: I think, honestly, Tesla shareholders have much bigger fish to fry. They're not sure how much the damages could amount to if Musk or Tesla have to pay. But what they are really worried about right now is distraction for Musk. Musk is already stretched very thin. You know, he's newly become the CEO and owner of Twitter.
FADEL: Yeah.
KOLODNY: He continues to spend a lot of hours working at Twitter. And he's appointed himself, you know, Chief Twit and made a whole bunch of controversial decisions there. Some of these are alienating, you know, a core market for Tesla, the liberal-leaning people who were part of Tesla's core market in the U.S. and Europe historically. Additionally, you know, Tesla has slashed its prices on cars worldwide. And shareholders are really worried about that. It could, you know, hit profitability. And there's now a question of a demand cliff. Are Tesla cars still in demand?
FADEL: Lora Kolodny covers the tech industry for CNBC. Thanks so much.
KOLODNY: Thank you.
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