Count on die-hard Tesla fans to continue to support Elon Musk even after he was sued by the Securities and Exchange Commission for alleged fraud, CNBC's Jim Cramer said Friday.
"They won't lose any faith," Cramer said on "Squawk Box." "As long as he's there, and not in jail, they will not lose faith."
However, Cramer added it will be difficult for Tesla to raise capital if "one of the risk factors is the CEO might be in jail."
Shares of Tesla sank 12 percent Friday, a day after the SEC filed the lawsuit.
Musk is being accused of making false and misleading statements in an Aug. 7 tweet about potentially taking Tesla private with "funding secured." The take-private idea was abandoned on Aug. 24.
Tesla and the SEC were close to a no-guilt settlement, but Musk pulled out of the agreement at the last minute, CNBC's Andrew Ross Sorkin reported Friday, citing sources.
Cramer described the settlement as a "deal of a lifetime," and said Musk made a huge mistake by not taking it.
"He must be going for some insanity defense," Cramer said on "Squawk on the Street." "That kind of deal. I mean that is the sweetest deal ever."
Thursday evening, Tesla and the company's board issued a statement backing the CEO, saying Musk has "integrity," and his leadership "has resulted in the most successful U.S. auto company in over a century."
After Musk apparently smoked weed and drank whiskey during an interview on comedian Joe Rogan's podcast earlier this month, Cramer suggested Musk should go on medical leave.
Musk had been acting erratically for months even before the take-private tweet.
In May, Musk rudely cut off analysts on Tesla's first-quarter earnings call. He apologized during the second-quarter call in August.
Musk was also launching tweetstorm after tweetstorm all summer as he was dealing with production problems for the company's new, less-expensive sedan, the Model 3.
