Charismatic CEO Elon Musk is known for taking business risks, but when it comes to his electric car company, he may want to proceed with caution.
The California Department of Motor Vehicles (DMV) has issued a first-and-only warning to Tesla Motors, informing the Musk-owned corporation that its referral program, among other company practices, may conflict with California law.
In particular, the DMV zeroed in on the car company’s limited-time offer to knock $1,000 off the price of a new Model S for buyers using a referral link of a current Tesla owner. In return for their referral, the current Tesla owner would get a $1,000 discount towards a new Tesla car, accessory, or service center visit, per the policy.
But that tit-for-tat action is in clear violation of the California Automobile Sales Finance Act, according to the state DMV’s Investigations Department chief, Frank Alverez, who penned a letter to Musk informing him of the discretion.
While he states in the letter that it is merely a written warning, he goes on to say that any failure to correct the program will result in “an administrative accusation being filed” against Tesla’s manufacturer and dealer licenses, and an immediate referral of the matter to prosecutors.
The legislation in question bans any sellers from “induc[ing] or attempt[ing] to induce any person to enter into a contract…by offering a rebate, discount, commission, or other consideration,” and goes on to specify that the seller cannot promise these benefits to a buyer in exchange for “information or assistance” needed to land a sale.
For their part, Tesla has described the program as a “way of thanking you for continuing to build the Tesla community” in the past; however, the company has been loath to comment on the current accusations.
Alverez’s letter also mentions several other citations, such as having a person act as a salesperson without a valid DMV license or permit to do so.
Getting in hot water with the California Department of Motor Vehicles isn’t the only worry for the electric car manufacturer.
Tesla stock took a nosedive earlier this week after Consumer Reports panned the Model S, saying the car had “below-average reliability,” and going as far as removing the vehicle from its recommended list.
As a result, Tesla stock dropped 9.5 percent on Wednesday—the steepest one-day loss for the company since August.
Despite reporting in August that the Model S had a superb combination of performance, luxury, and efficiency, Consumer Reports lowered its rating due to owner complaints about replacing the motor, as well as issues involving the car’s the newly added sunroof.