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Calif. DMV Puts Tesla Motors on Notice

October 30, 2015

By Alexis Tucker

SACRAMENTO, Calif. — Two years after the state dealer association began notifying the Department of Motor Vehicles (DMV) of numerous state and federal advertising violations by Tesla Motors Inc., the state agency issued a warning to electric vehicle makers that it will begin enforcing those laws and will refer cases it brings against marketers to local, state, and federal prosecutors.  

The warning was contained in a memorandum issued this month by Timothy Corcoran, the DMV’s occupational licensing compliance unit chief. Although Tesla wasn't named in the notice, the agency warned that advertising only a “‘net price’ for the purchase of electric vehicles (EVs)” violated multiple California advertising laws and Regulation Z, a federal rule that carries a fine of up to $1,000 per individual action, among other penalties. Violations of the state’s advertising laws carry a fine of up to $2,500 per person exposed to the false advertisement.

“… Manufacturers of electronic vehicles are advertising prices, which are not the manufacturers’ suggested retail price (MSRP) or cash price, but rather the ‘net price’ after deducting a potential federal tax credit, California rebate and other ‘savings,’” the memo states, in part.

In September 2013, the California New Car Dealers Association (CNCDA) requested that the DMV begin investigating the way Tesla marketed Model S leases on its website. It charged that such advertisements included the availability of incentives, gas savings, and tax savings in the final payment quotes for customers. The ads even claimed the true cost of owning a Model S — with a base price of $71,070 — was $114 per month.

“While we are gratified that the DMV has issued this blanket advertising warning, we are still waiting for decisive and public action by the DMV against Tesla for advertising that seriously misleads its customers and the public going back at least two years,” stated CNCDA President Brian Maas in a press release.

The association said it believes the DMV’s recent memo may be an indirect way of addressing Tesla Motors’ “referral program,” which the EV maker launched this past July. The promotion, which runs through the end of this month, promises to give Model S buyers a $1,000 discount if they were referred by a current owner, who would also be rewarded with a $1,000 discount on their next purchase or service visit.

In late August, the CNCDA called on the DMV to investigate Tesla’s referral program. The agency responded in a Sept. 29 letter to Tesla, which warned the EV maker that its promotion was in violation of multiple laws, including offering “bird dog fees.”

“Whether or not the referral program referred to above remains published on Tesla's internet website at this time, this is a written warning regarding future referral program participation,” read the DMV’s September letter. “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.”

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