Elon Musk might be here to stay as the world’s second-richest person

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Elon Musk is the world’s second-richest person, but for how long? picture alliance/Getty Images

Move over, Bill Gates. Elon Musk is now the world’s second-richest person, with an estimated net worth of $US158 billion, according to Bloomberg.

Musk’s rise on the list comes ahead of Tesla’s anticipated debut on the S&P 500 on December 21. After failing to enter the famous stock index during quarterly rebalancing in September,Bloomberg reported, Tesla is now set to become its largest new addition and its sixth-largest member by market capitalisation as soon as it joins.

Since the November 16 announcement that Tesla would be included, the $US658 billion company had seen its stock jump more than 70% to around $US695, a new all-time high. It’s no wonder, then, that Musk, whose net worth is largely tied to Tesla stock, has come to unseat Gates as the world’s second richest.

But as The Wall Street Journal points out, Tesla is “prone to huge swings in price.” Not only that, but the stock market in general has been incredibly volatile during the pandemic.

That is all to say — has Musk cemented his new spot on the billionaires’ list, or is it just a blip?

The man without a paycheck

Musk famously earns his billions without taking a paycheck from Tesla, refusing his $US56,000 minimum salary as CEO every year. In January 2018, Tesla announced it would pay Musk nothing for the next 10 years — no salary, bonuses, or stock — until the company reached a $US100 billion market cap.

Instead, Musk has a complicated compensation package that will result in a massive payday once he achieves ambitious performance goals.

It leaves Musk relatively “cash-poor,” with a fortune tied to his stock in Tesla and his other companies, SpaceX and The Boring Company.

Musk has said over the last several months that he’s no longer interested in owning physical assets, reported Business Insider’s Avery Hartmans, announcing that he would “own no house.” He has since reportedly sold off two of his California mansions.

But the lack of compensation year to year doesn’t mean he’s not making any money. In fact, in May, Tesla achieved $US20 billion in revenue and a sustained market cap of $US100 billion.

Through Musk’s incentive compensation plan, this achievement allowed him to purchase about 1.69 million shares of Tesla stock at a discounted price. That award was just a portion of the stakes Musk holds in his companies — he has shares worth $US98.9 billion in Tesla stock, $US30.7 billion in Tesla options, $US18.7 billion in SpaceX stock, and $US101 million in The Boring Company stock.

Should Tesla’s stock plunge, Musk could easily be knocked from his second-richest perch, but by the same token, the company’s stock had an extraordinary year that left Musk making more money than anyone else during the pandemic.

Tesla did not return a request for comment.

A stock boom

As of August, Tesla stock was up 732% in 2020 alone, reported Taylor Nicole Rogers for Business Insider, and Musk’s net worth skyrocketed along with it. In May, he was worth $US40 billion. By July, he was worth $US70.5 billion. His net worth ultimately rose by 197% between March 18 and August 13, according to an analysis by left-leaning think tank the Institute for Policy Studies.

After the announcement that Musk would join the S&P 500,Hartmans wrote, his wealth increased by $US11.8 billion to $US114 billion. The next day it rose again, to $US120 billion, when Tesla shares spiked 10% after Morgan Stanley gave the stock an overweight rating, according to Bloomberg. By the end of November, it was $US142 billion, more than $US15 billion shy of what it is currently.

Tesla’s positive trajectory in 2020 indicates that Musk will likely be holding down the fort as the world’s second-wealthiest man, especially when coupled with the glowy outlook for the S&P 500 as a whole. According to the Journal, the index is up by 13% in 2020. Morgan Stanley predicts the index will climb a further 8% by December 2021, while JP Morgan foresees it surging by 12% by September 21.

If Tesla stock falls, Musk has proven he can bounce back

To be sure, stock-market predictions should always be taken with a grain of salt, especially during the uneven recovery that has characterised the pandemic. Headlines from March, June, and October all screamed of a plunging Dow as the coronavirus spiked. And while the S&P 500 is sitting pretty right now, it plunged by as much as 7% in minutes in March when the pandemic first hit,taking a month to regain the loss.

While the move to the S&P 500 could well boost Tesla stock even higher, the Journal suggested that such a large addition to the index may even bring the stock price down, meaning Musk might again find himself behind Gates — and possibly others. Also, just as Musk’s net worth rose on the back of a surge in his company’s stock price, another billionaire with significant equity compensation could vault over him on the back of a sudden increase in valuation.

The Journal also cited a Goldman Sachs note projecting that Tesla’s move into the index means exchange-traded funds and other passive funds designed to match the S&P 500 will have to buy Tesla stock in the future, which could bolster its price and thus keep Musk in the second seat.

And if Musk’s success in 2020 so far is an indicator of anything, it’s that even if he does fall, he’ll be able to bounce back. Just this year, he’s already hit the first milestone of his $US55 billion compensation package. And in October, Wall Street’s outlook for stocks was back to its pre-pandemic norm. Musk has proven he can weather an economic storm, should another hit again.

In Tesla joining the S&P 500, Musk has unlocked a new benchmark to his wealth despite any future fluctuations he may face.