Elon Musk and his electric car company Tesla have agreed to pay a total of $US40 million ($55 million) to settle a US government lawsuit alleging Mr Musk duped investors with misleading statements about a proposed buyout of the company.

Key points: Tesla agrees to pay fine and for Elon Musk to step down as chairman of the company

Tesla agrees to pay fine and for Elon Musk to step down as chairman of the company Deal allows Mr Musk to remain CEO

Deal allows Mr Musk to remain CEO The SEC alleged Mr Musk had not secured funding at the time of his tweet

The settlement will also require Mr Musk to relinquish his role as chairman for at least three years.

The Securities and Exchange Commission announced the settlement just two days after filing a case seeking to oust Mr Musk as CEO. However, the deal reached allows Mr Musk to remain as chief executive.

Mr Musk, a billionaire, and Tesla, a company that ended June with $US2.2 billion ($3 billion) in cash, are each paying $27.5 million to resolve the case.

The deal could remove one cloud that hangs over Tesla. Investors fretted about the company's ability to cope without Mr Musk, a charismatic entrepreneur whose penchant for coming up with revolutionary ideas has drawn comparisons to one of Silicon Valley's most revered visionaries, Apple co-founder Steve Jobs.

Tesla's stock plummeted 14 per cent on Friday after the SEC filed its lawsuit, erasing more than $7 billion in shareholder wealth.

Many analysts predicted the shares would fall even further if Musk was forced to step down.

The steep downturn in Tesla's market value may have influenced Mr Musk to have an apparent change of heart and negotiate a settlement.

He had rejected a similar settlement offer before the SEC sued on Friday, maintaining he had done nothing wrong when he posted an August 7 tweet declaring he had secured the financing to lead a buyout of Tesla.

The SEC alleged Mr Musk was not close to locking up the estimated $US25 billion to $US50 billion needed to pull off the buyout.

Mr Musk and Tesla reached their settlement without admitting to or denying the SEC's allegations.

AP