The SEC is investigating Mr Musk over accusations he deceived investors about taking Tesla private.
The commission offered Mr Musk a chance to settle the accusations, which he later rejected.
Tesla now faces a long battle with the government, which could lead to the temporary removal of Mr Musk if the company loses the cases.
Garrett Nelson, an analyst for investment research film CFRA, said: “He was offered a very attractive option with the settlement, he rejected it and now he is rolling the dice.”
If the SEC use the full extent of their powers, Mr Musk could be banned from being a director of any public company.
Mr Nelson added: “If the SEC chooses to move forward, it’s completely uncertain he will remain with the company at all, given what they are pushing for.
“And I think it would be disastrous for the future of the company.”
Toni Sacconaghi, an analyst, nevertheless stressed that lifetime bans are rare, but warned that temporary bans are possible.
He noted that biotech executive Elizabeth Holmes was banned for ten years.
He added that hedge fund manager Steve Cohen was banned for two years, along with US television star Martha Stewart who was banned for five years.
Any form of ban for Mr Musk would have a large impact on Tesla, with competitors growing in the electric car market.
Mr Nelson warned: “If this uncertainty is still lingering, it becomes a lot harder or a lot more expensive to raise money.”
Tesla has already lost two high-profile employees in recent weeks.
Mr Musk is chairman and CEO of Tesla, and owns around 20 percent of the company.
Shares of Tesla fell sharply by nearly 14 percent on Friday, marking its worst one-day decline in nearly five years.
Tesla’s board have supported Mr Musk up until now, but their role is also being put under increasing scrutiny.