Oh the engineers probably perfectly understood what was going on. But they don't have the ability to correct Musk when he's spewing bullshit.
Ethically speaking though they're supposed to refuse signing off on the work and whistleblow the issues, so they aren't free of guilt.
Right now at my work we have a gap in our safety analysis with a contractor's product, and we've had to fight the VP to explain how we can't just say "it's their problem so we won't deal with it" if its part of our product. One of my colleagues had to go up a head to inform the head of safety that we were having issues. It's still an ongoing fight, but I cannot in good conscience allow the product to be finalized when we know there's a safety issue that needs to be addressed.
Don't get me wrong, it isn't an easy thing to do, and I'm really grateful that my coworker is very steadfast on this. But engineers aren't supposed to approve of any work they know is unsafe.