The state Department of Motor Vehicles recently sent a warning letter to Tesla Motors CEO Elon Musk, contending that the automaker’s “referral program” violates California laws.
A copy of the letter, dated Sept. 29, was obtained Thursday by The Sacramento Bee.
Under terms of the referral program described on the website of Palo Alto-based Tesla, anyone “who orders a new (Tesla) Model S before Oct. 31 using the referral link of a current owner will get $1,000 off the purchase price. In return, the current owner will get a $1,000 discount that can be applied to a new car, service center visit or accessory. New orders must be placed prior to Oct. 31, 2015.”
The program offers further incentives, including a $25,000 discount for a Tesla Founder Series Model X, which is not available to the public, for a person making 10 referrals.
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Tesla characterized the program as a “way of thanking you for continuing to build the Tesla community.”
Attempts to get comment from Tesla on Thursday were unsuccessful.
In his letter to Musk, Frank Alvarez, chief of DMV’s Investigations Division, said the Tesla program “violates California laws.” He described the Tesla offer as “a practice commonly referred to in the vehicle sales industry as offering ‘bird dog fees.’ ”
Alvarez goes on to allege specific violations, citing the California Automobile Sales Finance Act, which says it is “unlawful for any seller to induce or attempt to induce any person to enter into a contract subject to this chapter by offering a rebate, discount, commission, or other consideration, contingent upon the happening of a future event, on the condition that the buyer either sells, or gives information or assistance for the purpose leading to a sale by the seller of, the same or related goods.”
The letter also alleges multiple Vehicle Code violations, including a person acting as a vehicle salesperson without a valid DMV license or temporary permit.
The letter notes: “This is a written warning. The violations must be corrected. Any repetition of the violations may result in an administrative accusation being filed against your corporation’s manufacturer and dealer licenses, and referral of the matter to prosecutors without further warning.”
In an email responding to questions by The Bee, DMV spokeswoman Jessica Gonzalez wrote: “This letter is normal DMV procedure. It doesn’t set up a deadline for Tesla to reply, it is a warning letter to inform Tesla. The DMV has not started a process against the company, but we will continue to look into the matter.”
Brian Maas, president of the Sacramento-based California New Car Dealers Association, issued a statement Thursday, saying the CNCDA has been “asking the Department of Motor Vehicles to investigate Tesla’s advertising policies for more than two years now. The CNCDA is pleased that action is finally being taken.”
The statement continued: “As we’ve been saying all along, Tesla’s Referral Program clearly violates California law. The DMV appears to agree and is very clear in their warning letter. While the Referral Program is no longer listed on Tesla’s website, it can still be found using Internet searches. Whether or not Tesla will still honor referrals remains to be seen.”
Tesla designs, manufactures and sells electric motor vehicles and related components. Tesla stock gained $4.43 Thursday to close at $221.31 a share on the Nasdaq stock market. In after-hours trading, shares dipped $1.19 to to $220.12.