How The World’s Richest Man Actually Has Very Little Cash...

As of October the 13th, 2021, the Forbes realtime list of billionaires has Elon Musk at number one with a personal net worth of $26.6 billion. If you want some context, that's about the same as the gross domestic product of Greece. This means Musk's fortune, yes, is higher than the GDP of 73% of all countries. It's also equal to four Twitters, 1 million roadsters, or more impressively, 82 billion Happy Meals.

But despite having all this wealth, Musk actually has very little money. The Tesla and SpaceX CEO currently lives out of a $50,000 prefab house built next to the SpaceX factory in Texas and is actually heavily in debt. So how is this possible? How is it the case that Elon Musk, the world's richest person, actually has very little in his bank account? Well, let's find out.

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Now, before we dive into the Elon Musk case study, you have to understand how multi-billionaires become multi-billionaires. Yes, there are plenty of cases of freeloader billionaire children living off a family inheritance, and yes, that annoys me as much as it does the next member of the middle class that struggles to afford a one-bedroom studio. But when we look to the richest in the world, most of them are not freeloaders. In fact, practically all of them either started their own business or became CEO of a large business.

On that Forbes list, alongside Musk, there's Jeff Bezos, founder of Amazon. There's Bernard Arnault, the CEO of Louis Vuitton. There's Bill Gates, the co-founder of Microsoft, Larry Ellison, the co-founder of Oracle, and so on.

Now, when you start a business, as many of these guys did, you own all of it. You own 100% of the shares. Then, as the business grows, you might sell a percentage of your business to investors to access more capital to grow further. You might decide to IPO or go public, where you create new shares and sell them to the public, diluting your ownership further. But as the business grows, usually the founder, who typically dons the hat of CEO as well, still owns quite a large percentage of the shares.

The reason for this is to keep a controlling stake in their company so that they have the power to make decisions. Now, yes, these founder CEOs will most likely get paid a salary on top of their stock ownership, but when it comes to amassing a large fortune, usually the salary is nowhere near as important as that share ownership.

Have a look at this: Tim Cook, the CEO of Apple, took home $14.8 million in salary and cash bonuses last year. Now that’s a lot of money, but his net worth is estimated to be $1.4 billion. I mean, if he only got paid his salary and bonuses each year, his net worth represents 95 years of work. So while $14.8 million is a lot of money to take home as a salary for Tim, his net worth has been built on the back of receiving Apple stock and the stock price rising.

And this is the same with Elon Musk, even more so. Elon Musk does not draw a salary from Tesla or SpaceX. Nothing. Yes, he can access money through the vesting of stock options and from the sale of his shares, but in terms of a fortnightly paycheck, Elon takes nothing.

In much the same vein as Tim Cook and Apple, Elon’s net worth has exploded in the past few years, mostly on the back of Tesla's stock rising. Just 5 years ago, Tesla's share price was $393. Factoring in stock splits, today it sits at a staggering $857. That's $1,950% higher. This is not only good for Elon’s pre-existing pile of shares, but it also leads to further milestones of his compensation package being achieved, giving him even more stock through options contracts.

So overall, Elon’s wealth is very much built on his ownership of Tesla stock. The company now has a market capitalization, or stock market value, of $797 billion, of which Elon Musk owns 23%. Furthermore, Musk's other company, SpaceX, was recently valued at $100 billion, of which he owns 43.6% as of August.

So the vast majority of Elon Musk's fortune is in the value of the shares he holds in SpaceX and Tesla, not in the income he receives. And that's how he has a very high net worth but actually has very little money.

"I mean, it's not as though I've got like a billion dollars just sitting in a bank account or something. It just means that my ownership of the company is, if you add them up, uh, you know, it's a couple billion dollars," Musk said.

And the crazy thing about Elon’s situation is that it's basically impossible for him to access the $26.6 billion in net worth that he's accumulated. In fact, I can almost guarantee for the vast majority of his life, he will not access 99.999% of that wealth. And there are a few reasons for this.

Firstly, Elon Musk has used a lot of his Tesla stock as collateral to take on a huge chunk of personal debt to continue shoveling money towards his various ventures. As per Tesla’s most recent proxy statement filed in August, Musk has pledged 88.3 million of his 244 million Tesla shares as collateral to go into personal debt. So he won't be taking that money to the casino anytime soon.

But then secondly, and much more importantly, if Elon Musk sold his shares and realized his $200 billion net worth, he would lose his control of both Tesla and SpaceX. You see, the way companies work is that if you own more shares, you have more voting rights and thus more decision-making power. Now, in Musk's case, he owns 23% of Tesla, which is enough to effectively control the company because the way Tesla has structured themselves is that when it comes to voting on major decisions that actually require a supermajority of over 2/3 to pass a vote.

Therefore, while technically he doesn’t have a controlling interest at 23%, it does mean that 87% of all the other votes need to go against Elon for him to not get his way. So unless he comes up against Saddam Hussein, he should probably be all right.

Similarly to his position in Tesla, Elon Musk also holds 47% of SpaceX, but in this instance, Musk actually does hold a controlling stake as he owns 78% of voting shares—so way more than the majority share. Although, unlike Tesla, honestly, I highly doubt Elon will ever give up his control of SpaceX. The reason being is simply that the mission to Mars is so near to his heart, but also so expensive and farfetched from a traditional business standpoint that he will pretty much never want to put the company in a position where that mission is at risk.

So unless Elon wants out of Tesla and SpaceX forever, he actually can't get his hands on the majority of his $26 billion net worth. Interestingly, this structure of corporate ownership is also one of the major problems with a net worth tax which has been floating around over the last little while. You know, imagine if Elon was forced to pay a net worth tax; he had to sell his stock and thus lost control of Tesla and SpaceX because of it.

The larger shareholders would then be other businesses, BlackRock, Vanguard, and so on—corporate entities. What agenda would they push within these companies? You know, Tesla might start focusing much more on quarterly profit rather than its mission. They would likely start increasing the price of their vehicles instead of decreasing it. You know, SpaceX would likely abandon the Mars mission due to cost and would focus on more lucrative ventures such as Starlink or their Falcon 9 launch business.

I mean, is that something we really want to see happen? It's an interesting perspective. But overall, that is why Elon Musk, the world's richest person, actually has very little money. It's because A, he has very little income, and B, his net worth is instead tied up in the shares of the businesses he's toiled over for the past few decades.

Yes, he could potentially have a lot of money. Sure, a massive portion of his wealth would be sapped up by tax, but he'd still be very wealthy. But at the same time, that would require him to essentially give up on the two major goals that he's devoted his whole life to: accelerating the transition to sustainable energy and making humans a multiplanetary species.

And this is the same predicament for all the other billionaire business people. Sure they're wealthy, but in reality, they don't have billions of dollars in their bank accounts. I mean, for them to actually realize their full net worth, they would have to sell out of their businesses, you know, step away from their babies—the thing that they've grown for their whole adult life. Plus you also get pickpocketed by the government on the way out the door.

I mean honestly, to me, unless your objective is to just live the most lavish life you could possibly live, it sounds like the better deal is to just not realize your riches and just keep working on your passion instead.

But anyway, guys, that is it for this video. That is the story of why Elon Musk, the world's richest man, doesn't actually have as much money in the bank as people might think. So anyway, I hope you enjoyed this video, guys. If you did enjoy it, please leave a like on the video, subscribe to the channel to see more videos similar to this. If you've not subscribed already, please consider subscribing. I would really appreciate it.

And if you're interested in how I go about my investing, either active investing or passive investing, check out Profitful. Links are in the description below. You can also check out New Money Clips, which is the second channel I just started up recently if you want to see more short-form new money content.

But guys, that will do us for today. Thank you very much for watching, and I'll see you guys in the next video.

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