Tesla boss Elon Musk could be held in contempt if a tweet is found to have violated a settlement deal agreed last year.

US stock market regulator the Securities and Exchange Commission (SEC) has asked a court in New York to hold the chief executive in contempt for violating a $40m (£30m) settlement he reached five months ago.

Tesla’s stock dropped by more than 4 per cent in after-hours trading on Monday after the news emerged.

The PayPal co-founder was sued last September for using his Twitter account in August to announce he had secured financing for a potential buyout of the electric car manufacturer – news that caused the company’s stock to swing wildly.

At first he argued that he had not done anything wrong but reluctantly agreed to have future tweets that could affect Tesla’s stock preapproved.

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Now the US financial regulator is alleging that Mr Musk broke the terms of that agreement with a tweet on 19 February which showed an aerial photo of thousands of new Tesla vehicles and said the company would make about 500,000 cars in 2019.

A few hours later, Mr Musk corrected his statement, saying he meant that Tesla had started to manufacture cars at a weekly rate that would translate into 500,000 cars during a year-long period, but not necessarily for the calendar year 2019.

Mr Musk acknowledged he did not get company approval for the tweet, according to the SEC.

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In his defence, Mr Musk said he did not think his tweet needed clearance because he was basing it on information that had been disclosed in late January.

Car manufacturing statistics can affect stock prices of carmakers, however both 19 February tweets occurred while the US stock market was closed and Tesla’s stock rose by less than 1 per cent the next day.

According to the SEC, Tesla’s legal team realised Mr Musk may have crossed a line with his tweet.

The agency said a Tesla lawyer “immediately arranged to meet with Musk and draft the corrective statement that Musk tweeted out over four hours later” after the tweet was posted.

The entrepreneur could now face potential fines or even jail time if he is found to be in contempt.