Elon Musk touted a lenient return policy for Tesla, but history suggests customers should read the fine print

  • In an effort to boost first-quarter sales at Tesla, CEO Elon Musk took to Twitter urging customers to buy before price increases took place, and reminding them of the company's relatively generous return and refund policy.
  • Internally, Tesla sales employees were left wondering whether to take the CEO's tweets as gospel or stick to the policy-- as yet unchanged.
SpaceX founder Elon Musk reacts at a post-launch news conference after the SpaceX Falcon 9 rocket, carrying the Crew Dragon spacecraft, lifted off on an uncrewed test flight to the International Space Station from the Kennedy Space Center in Cape Canaveral, Florida, March 2, 2019.
Mike Blake | Reuters
SpaceX founder Elon Musk reacts at a post-launch news conference after the SpaceX Falcon 9 rocket, carrying the Crew Dragon spacecraft, lifted off on an uncrewed test flight to the International Space Station from the Kennedy Space Center in Cape Canaveral, Florida, March 2, 2019.

Tesla CEO Elon Musk has in recent days made several statements about refunds and deposits for vehicles that contradict the language in Tesla's official policies. In one case, sales employees say they haven't gotten any guidance about whether to honor his commitments.

By tweeting spontaneously, the Tesla CEO keeps customers and fans enchanted, but risks drawing further heat from regulators. The Securities and Exchange Commission last month filed a motion to hold Musk in contempt of court for allegedly violating an agreement they struck last fall, after the Tesla CEO tweeted about taking Tesla private at $420 a share. Those tweets appeared to spark a temporary spike in Tesla's stock price.

On Saturday March 16, in an end-of-quarter effort to boost vehicle sales, Musk took to Twitter urging customers to buy soon before prices went up. He reminded them of Tesla's lenient return policy.

Specifically, Musk wrote in three tweets:

  • "Reminder to buy our S3XY cars before midnight on Monday! Prices rise slightly worldwide on Tuesday. You can order online at http://Tesla.com"
  • "To be clear, orders are fully refundable, even after you've had your Tesla for a week"
  • "If someone really wants to return the car in good faith on day 8, that's fine."

What about the deposits?

In his tweets, Musk emphasized that "orders are fully refundable."

Tesla is now accepting $2,500 "pre-order payments" for the Model Y SUV, which it says it will start manufacturing next year.

However, the company's "Model Y Motor Vehicle Pre-Order Agreement" contains no provision for people who show up to get their cars, and don't like what Tesla presents to them -- for example, a Model Y with too many miles on the odometer, smaller-than-anticipated seats, chipped paint or a cracked windshield.

Additionally, history suggests that when customers refuse to take delivery of a Tesla they ordered, they may not get their pre-order payment refunded.

In Tesla forums online, customers have traded notes and complained about its refund policy. Several say they haven't gotten their money refunded for "deposits." (Tesla previously referred to "pre-order payments" as "deposits" when it was preparing to deliver earlier model vehicles, including the Model 3 electric sedan and its first SUV, the Model X.)

Others have sued Tesla to get their deposits back after rejecting delivery.

A one-time Tesla fan, William Carrol, shared records with CNBC that show he ordered a Model X in 2016, placing a $5,000 deposit down before the all-electric SUV was available for him to test-drive it in any nearby showroom.

He said, "I had never seen a Model X. When the vehicle arrived at the [Tesla store] I decided that it was not large enough for my family and so I decided against the purchase," he said. "I asked for a refund but was told that they would not issue a refund. I will never do business with Tesla again and am still furious about it today."

Given this ambiguity, CNBC asked Tesla: If a customer meets up with Tesla to take delivery of their Model Y, but does not want to pay for and take possession of the car because they've identified some flaws with it, do they get their pre-order payment of $2,500 back?

A Tesla spokesperson emphasized that the pre-order deposit is applied toward the purchase price of the Model Y, and is "fully refundable" until the customer takes delivery. After that, the customer may return the car under Tesla's returns policy and seek to get their payment back. However, as CNBC has previously reported, the process of getting a refund after returning a car is not always smooth or speedy.

A quick review of Model 3 FAQ page finds:

"Please note that after receiving a Vehicle Identification Number (VIN), you will not be eligible to receive a refund for your order deposit."

The "order deposit" is what Tesla is now calling a "pre-order payment." So, based on the Model 3 language, it's not always "fully refundable."

Customers seem to be confused about the policy, as shown by this recent tweet to Musk from a prospective Model Y customer:

'In good faith on day 8'

In addition, Musk indicated that Tesla would be lenient on its 7-day return policy.

But since Musk tweeted, Tesla has not amended its vehicle return policy, which says returns must occur "by the end of the seventh (7th) calendar day following the delivery date."

Two Tesla sales employees who spoke under condition of anonymity told CNBC they've seen no guidance from the company about expanding the return window from 7 days to 8, or what constitutes "good faith" on the part of a customer who brings back a new vehicle seeking a full refund.

A Tesla spokesperson referred back to Musk's tweet when asked about the "day 8" policy.

Musk has been known to tweak certain plans or policies, or make compromises to avoid a customer revolt.

For example, Tesla cancelled and re-started its referral program several times. The program turns fans into an unofficial sales force, and once offered wild incentives, like a chance to score a free new electric car. On Thursday, Musk brought the referral program back in a much tamer form.

More dramatically, the CEO recently said Tesla would close all of its stores and only sell vehicles online, in part to cut costs and be able to offer its Model 3 vehicles at a the long-awaited base model price of $35,000. But he soon relented, slowing down store closures after a customer and investor backlash.

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