Is Tesla’s Referral Program Illegal In California?

Tesla’s vaunted referral program (which allows current Tesla owners to profit from referral sales) may not have long for the world — if the Californian Department of Motor Vehicles gets its way anyways.

The regulatory body recently sent a warning letter to Tesla’s CEO Elon Musk, apparently, letting it be known that the regulatory body was of the opinion that the company was “violating” state law via the referral program.

For a bit of background here, Tesla’s referral program allows those purchasing a new Model S to get $1000 off if they’re referred by a current owner; the owner in question then gets a $1000 credit as well (for use with new purchases, service, etc). Apparently, those who are responsible for 10 referrals also get access to a $25,000 discount on a Tesla Founder Series Model X. (This deal apparently expires on the 31st.)

The chief of the Department of Motor Vehicles’ Investigations Division in the state, Frank Alvarez, stated in the recent letter that Tesla’s referral program was “a practice commonly referred to in the vehicle sales industry as offering ‘bird dog fees’.”

The Sacramento Bee provides more (the paper was given access to a copy of the letter reportedly):

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.”

The Sacramento Bee solicited a response from the state’s Department of Motor Vehicles, and received this response from spokesperson Jessica Gonzalez: “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.”

Unsurprisingly, this action was apparently the result of prodding by a local car dealership association. The Sacramento-based California New Car Dealers Association has itself been requesting that the Department of Motor Vehicles investigate Tesla for the practice for several years now, according to its president. It’s currently unclear which (if any) other associations were involved as well.

There’s a thread going on the Tesla Motors Club forum on this subject (thanks to “TheAccuser” for the topic). Some of the comments are interesting, and worth printing here in my opinion, so here you go:

“Jeffro01” kept it simple, and humorous, and stated:

As if I couldn’t hate the dealership association(s) any more than I already do… My guess is they complained to the state and the state was required to take action. While they pitch all of these laws and regulations as something that’s benefitting and protecting the consumer, the only thing they do is create a monopoly market.

If were Elon I’d take a picture of me flipping up my middle finger and send it back to the DMV, and send a copy to the CA Dealers Association as well… But… It’s probably good I’m not Elon…

“green1” had a pretty interesting comment that went into some further depth:

What increased risk is there buying from someone who is unlicensed, vs buying from the thousands of extremely sleazy licensed dealers? Their license doesn’t make them stand behind the vehicles they sell, it doesn’t stop them from pawning off defective vehicles, and it doesn’t stop outright fraud and lies. I don’t see the problem with someone without a license doing it. And we’re not even talking about that situation, because the unlicensed individual isn’t even selling the car! they’re only referring one!

I’m sorry, this is blatant protectionism of an industry that is thoroughly corrupt, has massive amounts of power, and definitely does not need any form of protection.

I’m not going to argue with that, but the dealerships do still maintain a lot of power. I’m not actually sure what I think will happen with this. The simplest choice for Tesla would probably be simply to change the program up a bit in order to remain within legality, but maybe the simplest choice won’t be the one taken in this case? Maybe Tesla would consider it worthwhile to fight this?