Tesla Tries Referral Incentives – Dealers Object

Tesla Motors Inc.’s Elon Musk reached back to his days at PayPal for the electric-car maker’s first-ever incentive offer.

Anyone who orders a new Model S sedan before Oct. 31 using the referral link of a current owner will get $1,000 off the purchase price, under the program announced July 29. The owner also receives a $1,000 discount that can be applied to a new car, a service center visit or accessories.

The approach harkens back to 1999 at PayPal, which Musk co-founded. The online-payments company offered users $10 to be deposited into their accounts if they referred the service to a friend, who would get the same amount. Luke Nosek, another PayPal co-founder, said at least 1 million people took up the offer.

At Tesla, it’s much more complicated because the referrals must be turned into solid sales of a car that costs $75,000 or more.

“What worked for PayPal may not work for Tesla, but it is worth trying,” Musk wrote last month in a note to Model S owners. A Tesla review found that the cost of selling a car through its stores is about $2,000. Saving that amount would let the company “give that money to our customers,” he wrote.

Tesla is eager to keep demand for the Model S strong while it adds the Model X SUV, slated to begin deliveries late next month. The Palo Alto, Calif.-based Company lowered its 2015 sales forecast earlier this month to at least 50,000 from 55,000. Musk cited possible assembly snags on Tesla’s first SUV, which he said could slow Model S output.

“The cheapest advertising is word of mouth,” said John Humphrey, senior vice president of the global automotive practice at consulting firm J.D. Power & Associates. “The current owners of the Tesla Model S are evangelical. It’s worth trying. There’s no downside risk.”

Tesla has a network of about 200 stores worldwide, but word-of-mouth sales from current customers have always been an effective way to promote the electric vehicle, as they were for PayPal.

In addition to the Tesla program’s discounts, owners who make five referral orders that result in sales will receive a free Tesla Powerwall home-charging unit, including installation, and two tickets to the April 2016 grand opening party for the company’s massive battery plant being built near Reno, Nev.

Tesla is also offering a free Model X SUV to the first person to refer 10 friends in each of its sales regions: North America, Europe and Asia-Pacific.

The new referral program from Tesla Motors Inc. outlined above is drawing complaints from dealers in the electric-car manufacturer’s home state of California.

The California New Car Dealers Association, the dealers’ main lobbying group in Sacramento, sent an Aug. 26 letter to Jean Shiomoto, director of the California Department of Motor Vehicles, asking the agency to crack down on Tesla’s referral program. The letter argues that the program is illegal under the California Motor Vehicle Sales and Finance Act of 1968, which bans compensation of people who arrange sales without a license — a practice known in the industry as “bird dogging,”

“While many other licensed dealers would like to offer similar referral fees to existing customers, California law flatly prohibits the practice,” the group’s letter says, adding: “Tesla is required to abide by the same consumer protection rules that apply to all other vehicle dealers in California.”

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