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Tesla Motors offers social-referral incentive for Model S

The online program is also a "guerrilla tactic" against car dealers in states where the automaker is not legally allowed to sell cars through physical stores, Tesla CEO Elon Musk said.

Silicon Valley automaker Tesla Motors introduced an incentive program to encourage owners of its electric vehicles to convince their friends to buy cars, even as the company spurns traditional marketing tactics such as advertising.

Tesla CEO Elon Musk described the incentives as an effort to ascertain whether the company can rely on social marketing tactics more heavily and open fewer retail locations.

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It also reflects a roundabout route to juice sales in states where the luxury automaker is banned from selling cars directly to consumers.

A Model S electric vehicle (EV) is displayed inside the show room at the Tesla Motors Inc. Gallery and Service Center in Paramus, New Jersey.
Ron Antonelli | Bloomberg | Getty Images
A Model S electric vehicle (EV) is displayed inside the show room at the Tesla Motors Inc. Gallery and Service Center in Paramus, New Jersey.

The company does not have dealer franchises, choosing instead to own and operate its own stores. It has also refused to advertise its cars, though Musk acknowledged that Tesla will probably begin mass-market advertising in a few years when it hopes to introduce an affordable car.

Musk said on a conference call that the company would offer a $1,000 credit to Tesla owners whose referrals result in the purchase of a Model S electric sedan. The friend making the purchase also gets $1,000 off the price tag.

To be sure, it's a modest incentive. Tesla cars range in price from about $70,000 to more than $100,000.

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The incentive program comes as Tesla is nearing the introduction of a new crossover vehicle, the electric Model X, this fall. The incentive program applies only to purchases of the Model S, though Musk said people who make 10 successful referrals will get the right to purchase a special "founder series" Model X that he has personally inspected.

The digital sales strategy is emblematic of the social-marketing tactics that are pervasive in Silicon Valley. Musk billed the incentive program as an experiment modeled after something that worked at one of his first start-ups, PayPal.

"I'm not entirely certain at all if it will work or not," he said. "But I think it's worth trying out because if it is a fundamental improvement of cost of scale and we can pass it along to customers, I think that's just really a good thing."

In classic Musk fashion, he said he didn't even have a name for for the incentive program.

But he said it's an important initiative because Tesla is currently spending about $2,000 per vehicle to sell a car in a physical store. That cost includes rent, utilities and labor. If Tesla can open fewer stores in the future and, instead, sell more cars online, it can pass those costs along to the consumer, Musk said.

He also said that Tesla will still open more physical stores even if the program flops.

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"We're just asking ourselves the question: How many stores should we open?" Musk said. "And the key element of that is how does word of mouth compare to store-based sales."

One benefit of online sales generated by social referrals is that it could improve sales to consumers in states where Tesla cannot legally operate stores due to dealer franchise laws.

"Customers who are not sales people can refer their friends. There's no rule against that," Musk said. "So it is kind of a guerrilla tactic against car dealers in certain states."