Law360 (November 20, 2025, 7:53 PM EST) -- Tesla shareholders urged the Ninth Circuit Thursday to revive their allegations that Elon Musk lied about the capabilities and safety record of Tesla's self-driving technology, saying the district court erred in finding no evidence of fraudulent intent since the billionaire clearly needed to boost Tesla's share price to buy Twitter.

The investors' lawsuit was tossed last year by a California federal judge, who found they had not shown Musk knew his statements were false and that other, forward-looking statements were protected from liability by provisions of the Private Securities Litigation Reform Act.

At the start of a hearing Thursday, a lawyer representing the shareholders, Jake Bissell-Linsk of Labaton Sucharow LLP, told a three-judge panel of the Ninth Circuit that in February 2019, Musk claimed Tesla would release "feature complete full self-driving" vehicles by the end of that year, adding that he was "certain of that … that is not a question mark."

But when the California Department of Motor Vehicles — which oversees autonomous vehicle permitting in the state — reached out to Tesla nearly two years later, the company's associate general counsel, Eric Williams, told the state agency Tesla's driving technology did not yet fit the DMV's definition for an autonomous vehicle, Bissell-Linsk said during the hearing.

The California DMV subsequently got on a call with several senior Tesla employees, including the company's director of autopilot software, Christopher "CJ" Moore, the lawyer said. Moore told the agency that Musk's messaging did not "match engineering reality," the panel heard.

U.S. Circuit Judge Salvador Mendoza Jr. questioned why those statements don't fall into under the PSLRA's safe harbor protections.

Bissell-Linsk said that to start, the provision does not shield statements that were made with knowing falsity.

Further, the lawyer added, the safe harbor protection doesn't extend to Tesla "given its history of securities law violations," a reference to an agreement the company reached with the U.S. Securities Exchange Commission in 2018 over Musk's tweets about taking Tesla private.

The safe-harbor provision is an anti-fraud provision, and Musk and Tesla were misrepresenting to investors the state of the technology, Bissell-Linsk argued.

Musk had personal knowledge about the state of the technology, the lawyer said.

In addition, false statements were made about the safety of Tesla's self-driving technology, with Musk saying the cars could self-drive better than humans can drive them, Bissell-Linsk alleged.

"A Tesla files leak revealed thousands and thousands of systematic problems with the technology, such as unwanted braking and unwanted acceleration," he told the court.

Counsel for Musk and Tesla, Ellyde R. Thompson of Quinn Emanuel Urquhart & Sullivan LLP, said the forward-looking statements are protected from liability because of the PLSRA safe harbor provision.

"They speak … of what would happen this year or what would happen next year," Thompson told the panel.

She also argued that Tesla was not excluded from that protection as a result of the SEC's 2018 order, which relates to SEC Rule 13a-15 and requires the company to maintain disclosure controls and procedures over Musk's tweets. The lower court held that the disclosure rule was not an antifraud provision, the Tesla attorney said.

Thompson also asserted that the safety statements at issue related to the autopilot feature in Tesla cars, which the company has always maintained required driver supervision.

"Autopilot is cruise control. It's a lane assist," she said. "It's not a product that Tesla indicated could be used without a driver at the wheel."

Another reason why the appellate court should affirm the suit's dismissal is because the investors failed to allege specific facts showing Musk and Tesla meant to commit a wrongful act, their lawyer contended.

"These are generalized allegations," Thompson told the judges. "They're not particularized."

U.S. Circuit Judge Daniel A. Bress asked about the claims related to the DMV. Thompson said the statements made to the DMV were consistent with what Musk was representing.

During his rebuttal, Bissell-Linsk said Musk claimed the cars could drive on their own without human intervention.

"He said, 'I'm very confident about full self-driving functionality being complete by the end of the year,'" Bissell-Linsk said.

There was a reason to lie about the capabilities of Tesla's vehicles, the shareholders' counsel alleged: Musk was going to need to liquidate a large number of Tesla stocks to fund the acquisition of Twitter. In line with that aim, he wanted to maintain Tesla's high share price, Bissell-Linsk said.

"He was motivated to make these misstatements," the lawyer told the panel.

In its written brief filed with the court in May 2025, Tesla pointed out that Musk's stock sales did not occur until after the first two disclosures that investors alleged were corrective.

In their complaint, filed Feb. 27, 2023, the shareholders alleged Tesla's stock price dipped upon news of a 2021 National Highway Traffic Safety Administration investigation into the electric-car manufacturer following a series of crashes potentially caused by the technology.

Last year, U.S. District Judge Araceli Martínez-Olguín dismissed the case with leave to amend, ruling that investors had not shown Musk knew he was making false statements when he touted the safety of self-driving technology or the progress the company was making toward fully autonomous vehicles.

The suing shareholders, led by the Oakland County Voluntary Employees' Beneficiary Association and Oakland County Employees' Retirement System, said testimony from a confidential witness, who worked at Tesla, indicated that Musk received regular reports about the progress of the engineering team to show he must have known his statements were false.

U.S. Circuit Judges Sidney R. Thomas, Daniel A. Bress and Salvador Mendoza Jr. sat on the panel for the Ninth Circuit.

The class is represented by Jake Bissell-Linsk, Carol C. Villegas, Guillaume Buell and Matthew J. Grier of Labaton Sucharow LLP, Lucas E. Gilmore of Hagens Berman Sobol Shapiro LLP and Aaron L. Castle of VanOverbeke Michaud & Timmony PC.

Musk and Tesla are represented by Alex Spiro, Ellyde R. Thompson and Jesse Bernstein of Quinn Emanuel Urquhart & Sullivan LLP.

The case is Thomas Lamontagne v. Tesla Inc. et al., case number 25-55, in the United States Court of Appeals for the Ninth Circuit.

–Additional reporting by Jessica Corso. Editing by Covey Son.

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