Elon Musk is pretty famous for promising imminent full self-driving every year and not delivering.
Could an investor sue the CEO or company for not delivering on promised technological breakthroughs like this?
I'm assuming that the answer is "no", but I'm wondering what the legal basis for the defense would be. I thought lying to investors was pretty bad.
Lying and making unduly optimistic statements about the future are two different things.
A legally actionable fraudulent misstatement of fact (either at common law or on a securities fraud theory) must be about a presently existing fact that is not an opinion, or must fairly imply a presently existing fact. See, e.g., Investopedia ("Misrepresentation applies only to statements of fact, not to opinions or predictions.").
A statement that a technological breakthrough will be made is a "forward looking statement" about a fact that does not presently exist. It can only be the basis of a lawsuit if the person making it had no plausible reason to believe that it would become true (e.g. the firm isn't working on, or having someone else work on, or expecting to buy from someone else, this breakthrough). This is defined is U.S. Securities law as follows:
(1) Forward-looking statement The term “forward-looking statement” means— (A) a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items; (B) a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer; (C) a statement of future economic performance, including any such statement contained in a discussion and analysis of financial condition by the management or in the results of operations included pursuant to the rules and regulations of the Commission; (D) any statement of the assumptions underlying or relating to any statement described in subparagraph (A), (B), or (C); (E) any report issued by an outside reviewer retained by an issuer, to the extent that the report assesses a forward-looking statement made by the issuer; or (F) a statement containing a projection or estimate of such other items as may be specified by rule or regulation of the Commission.
Part (1)(B) of this definition would include expected technological breakthroughs.
Someone can make a contractual promise that something will be done by a particular date. But a statement that a technological breakthrough will happen, which is made to investors and the general public, is not a promise and is not legally binding as a contract.
Generally, a prospectus (i.e. a formal communication made to investors) will specifically disclaim this liability. In the case of Elon Musk's company, the prospectus says:
We may fail to meet our publicly announced guidance or other expectations about our business, which could cause our stock price to decline.
We provide guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process, and our guidance may not ultimately be accurate and has in the past been inaccurate in certain respects, such as the timing of new product manufacturing ramps. Our guidance is based on certain assumptions such as those relating to global and local economic conditions, anticipated production and sales volumes (which generally are not linear throughout a given period), average sales prices, supplier and commodity costs, and planned cost reductions. If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.
Disclaimers of this kind are ubiquitous in statements made by publicly held companies which are subject to U.S. securities law regulation.
