California DMV Warns Tesla That Its Referral Program Violates California Laws

We’ve been writing about the fact that Tesla has been running into opposition to its referral program in both Virginia and California. Now, the story continues as the California Department of Motor Vehicles sent a warning letter to Tesla CEO Elon Musk, contending that the automaker’s referral program violates California laws.

Under the terms of the referral program that are described on Tesla’s website, 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 as well, such as a $25,000 discount on a Tesla Founder Series Model X, which is not available to the public, for a person who makes 10 referrals. The company characterizes the program as a “way of thanking you for continuing to build the Tesla community.”

In his letter to Musk, Frank Alvarez, chief of DMV’s Investigations Division, stated that the Tesla program “violates California laws.” He described Tesla’s offer as “a practice commonly referred to in the vehicle sales industry as offering ‘bird dog fees’.” Alvarez continued by alleging specific violations, citing the California Automobile Sales Finance Act, which says that 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 of 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 possessing either a valid DMV license or a temporary permit. The letter states: “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.”

Brian Maas, president of the Sacramento-based California New Car Dealers Association (CNCDA), issued a statement, 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. 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.”