Bloomberg: “Has Tesla Reached Limits of the Millionaire Market?” Video

3 years ago by Electric CarsTV 63

Tesla Hitting Limits Of Millionaire Market?

Tesla Hitting Limits Of Millionaire Market?

In this video, Bloomberg wonders out loud “Has Tesla reached the limits of the millionaire market?”

“Tesla Motors fell after the electric-car maker reported first-quarter Model S sales growth that was below top-of-the-range analyst expectations. Cory Johnson breaks down the numbers on Bloomberg Television’s “Taking Stock.”

As we all know by now, Tesla Motors is selling less and less Model S sedans in the US these days.  Several news outlets inaccurately linked lower US sales to softening demand for the Model S.  However, sales of the Model S are picking up elsewhere, like in China and some European countries.

What these news outlets fail to recognize is that the US is not the only country in the world.  Tesla sells globally and, starting next month, that will become even more true with Tesla shipping its first right-hand-drive Model S sedans to the UK and Japan.

Again, the US is not the only place where Tesla sells EVs.  Tesla is a global automaker, so we must examine global demand for the Model S, not just US demand.

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63 responses to "Bloomberg: “Has Tesla Reached Limits of the Millionaire Market?” Video"

  1. jkw says:

    I think this has the potential to be a problem for them. But right now, they are only 3% of the luxury car market in the US. I suspect they can get to at least 10% before they hit saturation. And that is only relevant for the Model S and Model X. If they actually make an affordable electric car or sell the batteries or full powertrains to other manufacturers, then the market is much larger.

    1. Nix says:

      A huge chunk of the US luxury car market is corporate leases for executives and business leases. Polk Research documents that in Tesla’s largest market (Southern California) Mercedes leases 76% of their cars, and BMW 65%. This is primarily due to the tax advantages of business and corporate leases of luxury cars.

      Tesla hasn’t even offered a business/corporate lease program until last month. Tesla’s old “lease” program didn’t qualify for the tax advantage status of real leases. Tesla has been effectively locked out of 65%-75% of competitive sales transaction in their largest market until just last month.

      Model S sales are just beginning.

  2. David Murray says:

    I thought it was a bit strange that they were only talking about US sales. I am under the impression even in the US, the wait time has gotten longer because they aren’t allocating enough cars to the US. So how can he said they are demand constrained?

    1. See Through says:

      What Bloomberg is saying, is sales aren’t increasing in existing markets. This is how growth is measured for anything; for example, growth in existing stores for retailers. Looks like some of you can’t take the truth.
      Tesla is so out of customers, soon they will start selling in the last few corners of the world, like Australia, Zambia, Vatican city, Columbia, SOuth Africa, etc. etc. There are so many countries still left to grow. Heck, if they can sell 10-15 cars per country per quarter, it will bring in another 1000 orders.

      1. Big Solar says:

        They don’t even advertise yet.

      2. pjwood says:

        Take it easy. You don’t know, like we don’t know, just how serious the battery shortage is. Margin in other parts of the world may be better. Penetration may be judged more important.

        Thanks for speculating.

      3. TomArt says:

        But that assumption only works if there is inventory sitting around.

        TMC has no US inventory – they still sell every car they make, and since TMC no longer reveals the order backlog, then analysts have to point to numbers, and the only numbers left are sales and inventory. Why the analysts fail to consider the fact that inventory = 0 is beyond me.

        1. See Through says:

          Obviously, backlog is close to 0. That’s why Tesla doesn’t say it any more. Any analyst can figure that out. When things were going good last year, Tesla kept yelling out those numbers. Now, a dead silence about US orders and backlogs. Any guess what happened?

          BTW, model S seems to be a very poor quality car, judging by the several drive train and tire replacements owners are going through. Leaf, Volt and Spark are of far better quality than Model S. Do a bit of research before ever thinking of buying a Tesla car.

  3. Big Solar says:

    Too bad Bloomberg dosen’t see that the US is not their only market. Reminds me of people in my hometown that have never left the county they were born in.

  4. Anon says:

    Softening demand for Model S is also probably due to folks waiting for the upcoming Model X… Which seems likely to outsell their sedan, at least domestically.

    1. sven says:

      “the upcoming Model X… Which seems likely to outsell their sedan, at least domestically.”

      LOL! Anon, your sarcasm always gives me a good laugh. 🙂

      1. Anon says:

        You’re confused. No sarcasm implied or intended.

        1. sven says:

          Really? Oy vey.

          1. TomArt says:

            No, Anon is absolutely right – SUVs/CUVs whatever you want to call, them – sell very well in the US. CUV sales sometime outstrip corresponding sedan sales (models that share the same platform).

            It is not unreasonable to expect that the Model X may outsell the Model S in the USA.

            1. koz says:

              Don’t know if X will outsell S but Cayenne greatly outsells Panamera and the comparison is pretty close except X will have even more relative functionality to the S versus Porsche’s siblings.

              1. sven says:

                More relative functionality? How so?

                I can throw a ski rack or a cargo box on the roof of a Model S and take the wife and kids on a ski trip. Where am I supposed to put the family’s skis/snowboards in a Model X with it’s functionality-robbing falcon wing doors? Falcon wing doors are form over function.

                The Model S is getting AWD as an option, which undercuts your functionality argument and will cannibalize Model X sales.

                1. GRA says:

                  While I agree with you about the stupidity of the ‘Falcon Wing’ doors on a CUV, you carry your skis/snowboards vertically on a trailer hitch rack at the rear, like these https://www.google.com/search?q=trailer+hitch+ski+rack&client=firefox-a&hs=Gbf&rls=org.mozilla:en-US:official&channel=fflb&tbm=isch&tbo=u&source=univ&sa=X&ei=WtR_U-GfOcLjoAS9z4DACg&ved=0CEsQsAQ&biw=1024&bih=646

                  Note that I’m assuming that Tesla will realize the need for a trailer hitch, or if they don’t DIY owners/aftermarket types will provide one, as they did for the LEAF. OTOH, for those of us who want to carry kayaks or canoes . . .

                  1. sven says:

                    A hitch mounted ski rack seems like the only option for the Model X. You’d probably need a bag for each piece of equipment since it gets coated in dirt and salt kicked up from under the car when it’s raining or snowing. All the Jeep Wranglers that have that type of rack always arrive at the mountain with crud covered equipment in wet or snowy weather.

                    I’m one of those who want to carry kayaks, surfboards, sailboards, and standup paddle boards (canoes not so much). Yakima’s RockAndRoll Trailers are your only option, but they’re pricey. It folds up for storage so that it doesn’t take up that much space in your garage.

                    http://www.yakima.com/shop/trailers/trailer

                    https://www.google.com/search?q=yakima+rack+and+roll&source=lnms&tbm=isch&sa=X&ei=8th_U6DDH7DMsQT9gIKwCw&sqi=2&ved=0CAgQ_AUoAw&biw=1138&bih=527

                    1. Nix says:

                      Sven

                      Only around 5-6 million people in the US, and yet there are over 40 million SUV’s and CUV’s on the road in the US. And when you go to ski resorts, there are still plenty of cars in the lots, they aren’t full of SUV’s.

                      My point? Not everyone gives a damn about ski racks, because not everyone who owns an SUV skis. It’s a falsehood to assume it will be such a big deal.

                      Besides, I’ve heard more than once that it will carry ski’s just fine, and that has already been addressed in some way.

                    2. Nix says:

                      5-6 million SKI in the US

                  2. sven says:

                    Nix,

                    Your numbers are way off. Over 24 million people in the US ski or snowboard. During the 2010/2011 season there were

                    11.5 million skiers
                    8.2 million snowboarders
                    4.5 million cross country skiers

                    http://www.snowsports.org/Retailers/Research/SnowSportsFactSheet

                    It’s not just skis and snowboards. You’re forgetting to count people who put other stuff on their SUV’s roof. The falcon wing doors prevent you from putting ANYTHING on the roof.

                    How many people in the US carry any of the following on their roofs?

                    -Cargo boxes – many millions
                    -Bicycles – many millions
                    -Kayaks
                    -Canoes
                    -Surfboards
                    -Sailboards
                    -Stand Up Paddleboards
                    -Fishing Poles
                    -Rooftop Tents
                    -Plywood, sheetrock, or other stuff from Home Depot to big to fit inside the car

                2. Koz says:

                  7 adult seats, significantly more interior room, improved headroom for rear seats, AWD, towing, walk in access, better handling kids in child seats, etc.

                  Yes, the falcon wing doors may limit roof carrying functionality but it remains to be seen whether they will offer standard doors or overcome the limitation some other way

                  1. sven says:

                    That third row seat looks cramped with very little legroom, and the sloped roof looks like it’ll be a tight squeeze for tall adults with regards for headroom. But I do love the raised seats that allow you do put your feet under the seat in front of you.


                    http://images.thecarconnection.com/lrg/tesla-model-x-at-2013-detroit-auto-show_100415432_l.jpg

                    1. sven says:

                      In the first pic above the third row got cropped out, but the link for the pic shows the third row and the lack of legroom.

          2. Spec9 says:

            Yeah, I kinda doubt that it will do better than the Model S because the Model X is going to cost even MORE. However, I’m sure there will be a big market for it. There are tons of BMW X5s, Lexus SUVs, Escalades, Mercedes SUVs, Range Rovers, and other beastly luxury vehicles that can be replaced with a Model X where I live in Silicon Valley. And these people have the money for them.

            Tesla really needs to make sure they have some superchargers up in the Lake Tahoe area though and along the way. I know there are some already but more would be better.

            1. sven says:

              The problem with the Model X is that it looks awkward, and doesn’t look like an SUV. All those luxury SUVs you mentioned look like SUVs. Instead of starting with a clean sheet to design an SUV, Tesla designed the Model X to be derivative of the Model S. As a result, the Model X looks like a bloated Model S with a big ass.

              The Model X bears a striking resemblance to the AWD Honda Crosstour, a huge sales failure. The Crosstour looks like a bloated Accord with a big ass, while the Model X looks like a bloated Model S with a big ass. Although the Honda Accord is a sales leader, the Crosstour doesn’t sell at all because of it’s awkward looks. Likewise, the Model X’s awkward looks will keep it from selling as well as the sexy Model S.

              1. Anon says:

                Mmmmm, dat ass. *pants*. 😉

  5. Tech01x says:

    Cory Johnson is being an idiot. You would be a fool to believe what he is dishing. Tesla Model S’s are pre-ordered. They built more this quarter than last. But there are delays getting cars delivered to new markets like China, UK, Hong Kong and so forth. Each and every Model S produced in Q1 has a named customer on it – any drop in sales delivery is due to problems getting that car to the named customer. It isn’t for a lack of named customers. To not mention Tesla’s direct sales model in that each car is pre-ordered is to be either stupid or intentionally deceptive to place the blame on lower demand. Again, production was higher on a quarter over quarter basis. If a car doesn’t get delivered to the named customer within a quarter, it will almost definitely make it to that named customer in the next.

    The idea that Tesla is running out of millionaires is then completely idiotic. Just starting deliveries to China. No deliveries to right hand drive markets like UK, Hong Kong, and Australia. No direct sales to Japan, Middle East, Africa, India, South America and so forth. Tesla simply can’t make enough cars, there is plenty of demand.

    To not mention that lease accounting is the biggest part of the discrepancy between the GAAP and non-GAAP numbers and the fact that Model S resale values are quite high which means that the likelihood of people utilizing the resale value guarantee is low is specious at best. GAAP accounting forces Tesla to carry the resale guarantee effects on their balance sheet, while it is moved off other automaker’s balance sheets. So *other* automakers get to count the sale right away, not Tesla. Again, Mr. Johnson is being deceptive.

    Finally, SG&A costs are skyrocketed because they are building out into new markets including building service centers, galleries, and most importantly, a global fast charging network. This is called investing into business for high growth. This is very good, not very bad.

    1. Josh says:

      +1

      Cory Johnson has a long history of bashing TSLA. Not sure if he has an agenda or just likes the controversy. He knows much more about Tesla than he is leading on in this interview. He has covered the stock regularly for years now.

      Here is a look back at an old Cory Johnson interview of Musk. http://www.bloomberg.com/video/70128220-tesla-s-musk-interview-about-model-s-spacex.html

      He mentions advertising budget, well we know that is $0. He also says the car costs $120k after tax credits. This is a complete overstatement.

      It was clearly stated in the results he was reporting on; the record production was due to filling the delivery pipeline to the overseas markets. Cars in transit do not count a sales.

      As sales grow in long transit markets, production will be higher than sales. In fact, once production matches or starts to trail sales, it will be a sign that demand is leveling off.

    2. Big Solar says:

      Looks to me like both these guys are deceptive little people. Seems like they are a good team.

    3. no comment says:

      the real issue is one of the size of the total available market because that limits your market potential. Tesla targeted a segment that they could penetrate quickly. the downside is that the TAM of that segment is fairly small in relation to the overall market for automobiles. that could be a problem for Tesla because Tesla is not trying to be a niche auto maker.

      geographic expansion is a smart strategy for Tesla because it can offset decreasing demand as they reach market saturation in the US. that comes with risks, of course, and it is expensive. of course, even with global expansion, there is still a point at which you would saturate each of the international markets if you are relying upon a high income customer base. it would be like asking mercedes-benz to get by solely on sales of the s-class; while it is a high priced vehicle, the price is too low to be the sole source of income for MB.

      so the Tesla model does rely on expansion of its TAM. this means hitting lower price points with vehicles like the Model X. where i see a problem with this strategy, however, is that, as a practical matter, the BEV approach does require that you have another vehicle. so this means that Tesla would be targeting people who could, for example, buy an e-class as a second car, as opposed to buying an s-class as a second car. so i think that even the Model X is going to be targeted for well above average income earners.

      with respect to financial analysis, no responsible financial analysis would use non-GAAP data, and the resale value guarantee doesn’t impact profits anyway. but you do have to be aware of the guarantee because it does represent risk exposure for Tesla.

      1. Tech01x says:

        Size of Tesla’s total addressable market is very large when you look at Tesla’s total volumes. As Tesla roughly doubles production each year, they have not yet probed the depths of possible demand. If you look at Tesla’s customer base and what cars they owned before, you’ll see that many of their customers came from much lower priced cars. Therefore, if you define the TAM as just previous Mercedes S class, A8, Porsche Panamera, etc. owners, it looks small. But that’s not the real TAM. First, Tesla’s Model S competes against the Mercedes E/BMW 5/Audi A6/A7 and so forth plus all of the higher priced sedans… which has combined volume exceed 1 million units per year. Further, Tesla’s vehicles can pull in people that have more than enough money, but have never spent that much on a car. Much like Apple’s iPhone caused people to buy $650 smart phones who had never bought Nokia’s $500-1000 Communicator smart phones.

        Good financial analysts build their own models that make sense and fit the reported data into it, so GAAP or non-GAAP is immaterial unless you are winging it. To deliberately not understand the GAAP issue with lease accounting and adjusting for it is just being bone-headed or specious. Further, GAAP rules are possibly going to change around this issue.

        As it stands, Tesla offers lower priced cars, but customers keep clamoring for the higher priced options and therefore their ASP’s are high. That doesn’t mean they don’t offer $80k competitive sedans against the BMW 5 series, it just means that enough customers decide to spend $110+ so that the ASP is near $100k.

        1. no comment says:

          if you actually believe that there is a “very large” market of people who can afford to pay 6 figures for what is basically a second car then you are blinded by your enthusiasm for Tesla because that isn’t a viewpoint that comes from the real world.

          as far as the idea that people could buy base Tesla models; if people are paying to get options, that should tell you something about what the Tesla customer base thinks about the base model – people don’t go around asking for options merely because they want to spend more money…

          1. Rob Stark says:

            A Model S is not a second car although most people/families that buy premium sedans own more than one vehicle. That includes S Class owners as well as Model S owners.

            Relative to current sales the number of people that do buy cars in the $71k-$131k range is very large.

            The uptake rate on options is high because we are still in the early adopter phase. Early adopters see high value in options Tesla offers.

            Not seeing that is to remain willfully ignorant.

          2. Zac says:

            The number one previous car for Tesla owners is the Prius. They are targeting an additional niche that other luxury car brands have not yet pursued.

          3. Tech01x says:

            no comment,

            please try looking up the census figures for just the number of households in the U.S. with incomes in the top 5%. Then check the corresponding income level. Then divide by 10, and you’ll see that the TAM in the U.S. alone is quite high.

            Then look at the total global sales of luxury cars and notice how many markets Tesla doesn’t sell even 1 car into at the moment. Look at the global sales figures for Mercedes, BMW, Audi, etc. for luxury cars.

            In the U.S. alone, Tesla has barely gotten started. In this next 3 months or so, Atlanta will have 3-4 superchargers. It didn’t have any at the start of 2014. As each major metro area is connected to Tesla’s Supercharger network, the percentage of the TAM that Tesla can reasonably sell into increases. Even LA is missing the Indio Supercharger which is now under construction. The Boston area is barely connected to the Supercharger network, and the major cities in Canada like Toronto and Montreal don’t have Superchargers yet. Instead of spending money on advertising/marketing, Tesla is spending money on infrastructure that doubles as advertising/marketing as the Superchargers act as demand generators.

            The idea that Tesla has sold all it can to the TAM is to completely misread what the TAM really is in the U.S. or globally.

            1. Anon says:

              +1

              Well said. 🙂

      2. koz says:

        OMG! Someone better tell Mercedes, Cadillac, BMW, Lexus, Acura, Infinity, Porsche, etc, etc that the millionaires are running out. OMG, the sky is falling!

    4. Skeptic says:

      Tech01x is spot-on here. This nonsense makes poor Cory Johnson look like an even bigger fool.

  6. Phatcat73 says:

    And yet Teslas build to order date slipped from 1 month to 4 months in the last few days.

    Perhaps Bloomberg is trying to capture some shorts then build up again.

    1. See Through says:

      That’s funny. All of a sudden, orders just poured in, and delivery delays slipped few months in few days!
      There must be some 50% off sale going on.

  7. Jeff D says:

    There is also the fact that even though you need to have a healthy income to afford a Model S, you do not necessarily need to be a millionaire. There is plenty of market. People continue to buy them. The numbers will go up and down depending on when somebody decides to purchase one.

    1. Big Solar says:

      I am no where near a millionaire and I bought one.

  8. CherylG says:

    Speaking of other countries, Elon predicted big sales in Germany, predicted Germany would be the #3 market selling at a 10,000 rate by the end of the year.

    What happened?

    Even after a major slashing of prices, sales have not taken off.

    Germany has been a major under performer for Tesla.

    With increased competition from BMW with their i line, Mercedes with their excellent plugin S-Class and Porsche with their plugin Cayenne, I think it’s safe to say Tesla will continue to be disappointed with their dismal performance in Germany.

    1. Big Solar says:

      Everyone can’t be right about everything every time.

      1. Anton Wahlman says:

        On February 9, 2012, people who placed a deposit on the Model X were promised a December 2013 delivery date. This was not changed until early 2013.

      2. Anon says:

        *Dramatic News Anchorman Voiceover*

        “This late breaking announcement just in…

        OMG!!! ELON MUSK IS A HUMAN BEING!!!

        Stay Tuned to More News at Eleven…”

    2. Josh says:

      Musk was definitely wrong about Germany so far.

      Although I would argue that the i3 and the B class are going to help Model S sales not hurt. The more people are exposed to electric drive, the more likely they are to take a test drive in a Model S.

      There is an element to organic growth to EVs in general and the Model S specifically. Germany has been slow in getting off the ground for all EVs, not just the Model S.

      1. Anon says:

        CherylG must be of German Heritage… 😉

      2. pjwood says:

        I think it’s fundamental. Higher end luxury cars need good roll-on acceleration, for the autobahn. I’m sure our friend ‘Elroy’, from Germany, will attest a car needs to get from 100-150mph with aplomb. Elroy, are you there?

    3. no comment says:

      while i think that it is definitely a good idea for Tesla to see geographic expansion, one of the difficulties (and one of the things that can really drive up marketing costs) is that you often have to tailor your marketing message to each market. so the same marketing approach that works in the US may not work in Germany.

      so it is not surprising to me that Tesla is facing challenges in expanding internationally. they aren’t the first; there are brands in europe that are not in the US because they just weren’t able to establish a market here. peugeot may be a big auto brand in europe but they failed to establish a market here; the same with fiat, although with the purchase of chrysler, they are making another attempt to enter the US market under the fiat name.

  9. QCO says:

    This is somewhat typical of the hyper-intensive focus on tehcnology start-ups by analysts looking to be seen as the one who predicted the up/down event first for their clients.

    The rest of us need to look at the bigger picture pragmatically, taking into account the global sales initiatives and the product roadmap instead of hourly sales numbers. It still looks good…

  10. ffbj says:

    When this was recorded the stock was at $186, today it’s back over $200 a share, neato.
    This article is light on facts and simply tosses off incorrect statements as established facts.
    The cars cost 120k for instance. Totally optioned out yes, but he does not say that? No. He could of easily have said 86k choosing the low end, or 100k, choosing the average, but no, he takes the high end. Just another skewed report from Bloomberg, who apparently hate Tesla.

  11. pjwood says:

    You expect this from WSJ, but Bloomberg is puzzling. I dont’ know what explains the willful ignorance. Their machine aligns against Tesla. Matt, Pim, Cory and a guy named Jonathan Weil all know better than the facts they cling to. The last one, Weil, wrote a snarky take-down piece about Tesla’s giving non-GAAP results first billing, in their releases, a potential SEC violation. That he wrote it during last Fall’s price decline, brings another term the SEC watches to mind. Its called “Short Sharking”.

    Cory J. is also in San Francisco, the all-in place for Tesla. Like that state’s chastened Republicans, he probably felt the need some time ago to play devil’s advocate. My guess is it quickly branded him this schtick. He doesn’t seem that polished on the automotive or energy sectors, however, and I think his moonlighting should probably be taken for what its worth.

    Markets are pretty inefficient these days.

  12. Mark says:

    Sales going down in US? Really. Give us some facts instead of speculation. Tesla can only produce so many cars, and they need to deliver some of those cars outside of the US, that doesn’t mean demand in US is down.
    And lack of millionaires? Wow. Great research. I’m guessing most people that have bought a model s are far from millionaires. Doesn’t take a genius to figure out the savings of not buying gas if you drove a lot. For many that in itself pays for the car.
    Guess with your lack of millionaire theory, Porsche, jaguar, high end Mercedes, bmws. Etc… Are going to have a hard time selling as well. And shoudl just shut down.
    Very poorly written and thought out article.

  13. scott franco says:

    Tesla will reach saturation, but running out of wealthy customers isn’t it. Much more likely the gap between selling to silicon valley types and the rest of america. When Omaha has a supercharger, when every reasonable size city has a supercharger, then the same crowd that wanted to reward itself with a porche is going to be thinking about a Tesla.

    1. Mark says:

      That is currently in the works. And the superchargers are between cities , not in them. They are designed for interstate travel, not local charging, that is what the home is for.
      I’m guessing ICE cars had this same argument against them when they started. “How will I drive anywhere? Where will I get gas to fill it up?, etc…”

  14. Boris says:

    This Cory Johnson guy is a sore loser. He intentionally leaves out important info and provides incomplete facts. Shameless guy who probably lost a lot of money shorting TSLA…

  15. TomArt says:

    *click*

  16. Priusmaniac says:

    Well there probably is some trough to this; there are only so many millionaires around that can afford the car. On the other hand millionaires tend to change car after 4 years so we will soon see all the sales being renewed. In the same time Tesla is bringing the cost down somewhat so being somewhat less millionaire becomes possible.
    This said it is really getting time to come out with the more accessible Gen 3 exactly to avoid market stagnation like is said. The gen 3 is the one that can really make Tesla mainstream especially if they find a way to get their hand on the Toyota Direct Free Piston generator as a rex to extend the still too limited range of 200 miles. Since they worked with Toyota on the RAV4 EV it shouldn’t be impossible to find a deal with them for supplying those generators at an affordable price. Once Gen3 so equipped get mainstream they would in reverse be able to provide an EV powertrain for a BEV Camry like Toyota.

  17. Nix says:

    According to Ward’s Auto, the Average number of days on the lot for a new car before it is sold is now 69 days as of April 2014.

    For a Model S, it is Zero days. Actually, it is negative 120 days, because if you order now, you can’t get one delivered until 4 months from now.

    Cory, let’s talk about demand when Tesla has an 86 day Inventory sitting on lots, like VW. Or an 81 day Inventory sitting on lots, like Ford.

    1. Mark says:

      Or 725 days like the Cadillac ELR.

  18. Nix says:

    Cory apparently doesn’t even know that it is has been barely a month since Tesla announced that they were going to start a real Business Lease program.

    This is the REAL way that lots of luxury cars get sold (as business deductions). So Tesla hasn’t even began to tap into the US luxury market. But Cory probably knows this, because I’m sure he drives a company car himself…..