Tesla Alters First Sales Incentive After Virginia Cracks Down

Virginia regulators have taken issue with Tesla Motors Inc.’s new Model S referral program, prompting the maker of luxury electric cars to change the program in that state.

Tesla, which eschews traditional advertising and dealer networks, recently rolled out its first incentive program. Under the offer, designed to boost the company’s sales via word-of-mouth marketing, anyone who orders a new 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 accessories.

But under Virginia law, the practice of compensating people who are not licensed by the state to sell cars -- known in the industry as “bird-dogging” -- is illegal. Palo Alto, California-based Tesla, run by Chief Executive Officer Elon Musk, has a limited presence in Virginia, with one showroom in Tysons Corner, an affluent area near Washington, D.C., and a combined store and service center nearby. So now in Virginia the whole $2,000 will go to the buyer.

“If Tesla is compensating current owners $1,000 for selling a Model S to their friends, they are out of compliance,” Bruce Gould, executive director of the state’s Motor Vehicle Dealer Board, said in an interview Friday. “If a Ford dealer was giving out dinner coupons to customers for referring their friends, we’d say the same thing. What’s the difference between selling a vehicle and convincing someone to buy a vehicle? There has to be a line.”

Gould said that he expressed his concerns to Tesla’s deputy general counsel.

Program Change

“This law was enacted a long time ago to prevent rogue salespeople, not for preventing friends from recommending products they love,” Ricardo Reyes, a Tesla spokesman, said Friday in an interview.

Tesla notified Virginia owners with a letter on Thursday.

“Our Referral Program was never designed to make you a salesperson,” Tesla said in the letter, which was shared on the privately run Tesla Motors Club website. “Nevertheless, due to the position taken by Virginia regulators, we are making one change to our Referral Program for our customers in Virginia.”

The change comes as many Model S owners take to social media networks like Twitter and Facebook in an effort to win the contest. The first Model S owner to sell 10 cars in North America, Europe and Asia will win a fully loaded Model X, a crossover sport utility vehicle set to go on sale in late September after several delays.