SAN FRANCISCO (Bloomberg) -- 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.
Nosek, who went on to start Founders Fund, a venture capital firm in San Francisco, said the PayPal referral program “was an important incentive, and we kept it going for a couple of years. People who are passionate about products are the best advocates for the product.”
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.
Many prominent Tesla owners, including actress Alyssa Milano and evolutionary biologist Richard Dawkins, have shared their referral links to their millions of followers on Twitter.
Ryan Cramer, an advertising executive in Santa Monica, Calif., is attempting to generate 10 Model S sales by promising to give each buyer an additional $10,000, which he plans to raise by selling the free Model X for $100,000.
“I’m trying to cut through the clutter,” said Cramer, who owns a Model S and has a reservation for a Model X. “The hardest thing is reaching the market for people who are ready to pull the trigger on a new car but may not know about Tesla. But if you’ve already made the decision to buy a Model S, it’s like, ‘Just use my link.’”
There may already be a winner in Europe. Bjorn Nyland, a Tesla enthusiast in Norway, said he’s referred orders for 10 Model S sedans and asked Musk on Twitter if he’d won.
“Provided all ten take delivery, you have indeed,” the Tesla CEO told him in an Aug. 8 tweet.
Nyland won’t know for sure until each of the 10 completes their orders, doesn’t cancel and takes physical delivery of their cars, which can take weeks given shipping times from California.