founder Jeff Bezos became the wealthiest person in the world in 2018. He kept this status from 2019 to 2021. However, in September 2021, Elon Musk snatched the spot away from Bezos. Forbes declared the Tesla
executive and SpaceX
founder in November 2021 the first person in the world to own a net worth of over USD 300 billion.
The prolific magnate became the wealthiest person in the world in 2022 with an estimated net worth of USD 270 billion as of March 2022 according to the Bloomberg Billionaire Index and Forbes. His business interests range from electric vehicles and space transportation to artificial intelligence and construction. How exactly did Elon Musk become rich?
Understanding how Elon Musk got rich and became one of the wealthiest people in the world necessitates taking a look at the significant turning points in his business career, including how his initial ventures helped him amass wealth, his decisions to invest in newer ventures, the performances of his existing businesses, and the value of all of his investments.
How Elon Musk Got Rich: Building Wealth Through Business Ventures
Founding and Selling Zip2 and PayPal
It was in 1995 when Musk founded the web software company Global Link Information that eventually named Zip2 in 1996 with his brother Kimbal Musk and colleague Greg Kouri. It developed and marketed an online city guide for the newspaper publishing industry. The group sold the business to Compaq Computer in 1999 for USD 307 million. Musk received USD 22 million in cash which represented 7 percent of his company shares.
Musk ventured into online-enabled financial services in 1999 when he co-founded X.com with Harris Fricker, Christopher Payne, and Ed Ho. Their biggest competitor at that time was Confinity and its PayPal money transfer services. Musk believed in the potential of online payment systems and he compelled his business partners to merge
with Confinity to avoid competition.
The merger was completed in March 2000. Musk became its chief executive. He also decided to terminate the online financial services operations of X.com. His stint as chief executive was cut short when he was replaced by Peter Thiel. The merged companies eventually adopted the name PayPal in 2001 and it went public in 2002. In October 2002, eBay acquired PayPal for USD 1.5 billion. Musk received USD 175.8 million for his 11.72 percent shares.
Launching and Expanding SpaceX
Elon Musk has a demonstrated interest in the exploration and colonization of Mars. He even became a member of the non-profit Mars Society in 2001. His interest even led him to attempt purchasing refurbished intercontinental ballistic missiles or ICBMs during the same year as part of an idea of transporting growth chambers for plants in space.
However, he was seen as a novice in the community. He even shelved his plan of purchasing an ICBM after the seller billed him for USD 8 million. But his interest in space exploration did not wane. After receiving USD 175.8 million from the acquisition of PayPal in 2002, he founded Space Exploration Technologies or SpaceX in the same year with the goal of building affordable rockets. His company subsequently embraced the greater goal of reigniting interest in space exploration and reducing the cost of space transportation.
His company also explored opportunities in satellite communications as early as 2004. SpaceX formally introduced the Starlink business division
in 2015. The division is involved in providing satellite internet services
across the world through the network of low Earth orbit communication satellites that form a satellite internet constellation.
SpaceX achieved numerous milestones. It became the first private organization to launch a liquid-fueled rocket that succeeded in reaching orbit. It also introduced modular and reusable design principles in building rockets and spacecraft to gain a cost advantage. The low-cost strategy successfully disrupted the aerospace and launch industries.
The company generated a revenue of USD 2 billion in 2018. A regulatory filing in April 2022 showed that it has been valued at more than USD 100 billion. The company has secured contracts with the National Aeronautics and Space Administration and the United States Air Force. It also provides commercial space transportation services to private individuals, as well as satellite internet access to individuals customers and military satellite communication services to the Space Development Agency of the U.S. Department of Defense.
Success and Fortune from Tesla
It cannot be denied that the revenues and market value of SpaceX and its future potential are indicative of feasibility and business success. However, it is also important to note that part of understanding how Elon Musk got rich and became one of the wealthiest people in the world is the electronic vehicle and clean energy company Tesla.
Engineer and technology entrepreneurs Marin Eberhard and Marc Tarpenning founded Tesla in 2003 as Tesla Motors. Musk used USD 6.5 million from his PayPal acquisition earnings and spearheaded the Series A round of funding in February 2004 to become the majority shareholder of the company and the chairperson of its board of directors. He became the chief executive of the company and product architect following the removal of Eberhard from office. Note that a 2009 lawsuit with Eberhard made him one of the co-founders of Tesla.
Tesla utilized a business strategy centered on producing high-priced but low-volume electric vehicles targeted toward customers who are less sensitive to price. Musk explained that this strategy allowed his company to bring down the cost of batteries while enabling them to produce inexpensive electric vehicles at higher volumes.
Note that the company expanded from manufacturing electric vehicles to producing photovoltaic systems
or solar panels and batteries or energy storage products for home and grid-scale solar panels and other renewable energy sources beginning in November 2015. Tesla Energy is the specific division that oversees and drives its clean energy business.
It is also important to highlight that Tesla takes advantage of a business model characterized by multiple income-earning streams. It has generated revenues from value-added and after-sales services such as car insurance, software upgrades, vehicle servicing, and vehicle charging. These services generated USD 900 million in revenues for the first quarter of 2021.
Tesla generated a revenue of USD 53.8 billion and a net income of 5.52 billion in 2021. The estimated market value of the company is around USD 473 billion. It has been regarded as one of the most valuable companies in the world and the most valuable automaker in the world with a market capitalization of over USD 1 trillion. Data from 2020 showed that it captured 23 percent of the battery-electric auto market and 16 percent of the plug-in auto market. Tesla Energy is also one of the largest suppliers of battery energy storage systems.
Other Business Ventures and Interests
SpaceX and Tesla are the main sources of wealth for Elon Musk. However, it is also worth mentioning that he also has other business interests and ventures. For example, in late 2015, he co-founded the non-profit artificial intelligence
laboratory OpenAI and in mid-2016, he co-founded the neurotechnology company Neuralink Corporation.
Remember that OpenAI is a non-profit organization with a primary goal of promoting and spearheading open collaboration in artificial intelligence research
to create positive long-term human impact and reduce or eliminate risks associated with advanced AI. Neuralink Corporation is a for-profit organization that develops implantable brain-machine interfaces. These initiatives remain at their initial stages and their wealth-generation potential remains uncertain.
Musk also founded the infrastructure and tunnel construction services company The Boring Company in 2016 as a subsidiary of SpaceX before becoming a separate and independent entity in 2018. He also became the largest shareholder of Twitter when he purchased 9.2 percent of its total shares or 73,486,938 shares valued at over USD 2 billion in March 2022.
How Much is He Worth: Understanding the Sources of Wealth of Elon Musk
Appreciating further how Elon Musk got rich also requires understanding his sources of wealth. Of course, it is also important to highlight the fact that he did not start from scratch. He came from a relatively well-off family. His Canadian-born South African mother, Maye Musk, was a former model and dietician who came from a midde-class family while his South African father, Errol Musk, was a part owner of an emerald mine in Zambia.
Musk said that their family had so much money at times they could not even close their safe. His background afforded him to move to Canada and further to the United States. Remember that he founded a startup tech company in 1990s with his brother and a colleague. He essentially had a leverage to start of and take things farther.
It is still important to note that what he did with what he had is the primary the reason how he became a multibillionaire. A 2020 article published by The Wall Street Journal described him as the cash-poor billionaire of the tech world. Musk mentioned in the same article that he was selling most of his acquired real estate properties and other material possessions.
Note that a cash-poor affluent individual is someone who has acquired significant economic assets in the form of securities such as shares in companies and bonds, as well as other non-cash assets including real estate and personal effects, among others. This individual derives his or health wealth from the value of the assets he or she owns. However, he or she is unable to readily and easily liquidate these assets and convert them to cash for monetary transactions.
The aforementioned explains the wealth of Elon Musk. He might have a net worth of more than USD 300 billion but this does not mean that he has this amount of money in his bank accounts. The same is true for most multi-millionaires and billionaires. Furthermore, for those whose wealth comes from ownership of securities, their net worth is dependent on the movement of prices and trends in the financial markets.
Musk specifically owns 47.4 percent of equity at SpaceX via the Elon Must Trust and 17 percent of shares at Tesla. He also owns about 90 percent equity of The Boring Company while SpaceX owns about 6 percent. The exact percentage of his ownership of Neuralink Corporation remains unknown. Note that he also offered to buy Twitter at USD 44 billion
Of course, he owns other non-cash assets. However, most of his net worth depends on the performances of the companies mentioned above. All of these companies have different revenue performances and market capitalization. Furthermore, the market value of publicly-traded companies such as Tesla and Twitter depends on their performances in the stock market.
Elon Musk became the wealthiest person in the world in November 2021 and at the start of 2022 after the market capitalization of Tesla passed USD 1 trillion following the announcement of Hertz that it would purchase 100,000 electric vehicles from the company to add to its rental fleet. Much of the wealth Musk is essentially tied to Tesla. Remember that this company is one of the most valuable companies and the most valuable automaker in the world.
His fortunes are expected to increase further in the future due to the expansion of Tesla and the promises of SpaceX. American multinational investment bank and financial services company Morgan Stanley explained that Musk will reach the trillionaire status due to the current developments and future directions of his aeronautics and communications company.
The infusion of additional capital by investors to all of the aforementioned companies also drives further the net worth of Elon Musk. These investments fundamentally increase the market capitalization of these companies, thus potentially increasing the value of the shares or equities held by Musk. The addition of funding can also benefit the owners because added investments can help improve the operations and increase revenue potential.
Jeff Bezos may have retained his status as the wealthiest person in the world. His net worth had moved drastically in the most recent past due to the stock market performance of Amazon and the performance of his other ventures. His divorce from MacKenzie Scott also cost him 25 percent of his Amazon shares which were valued at about USD 36 billion.
FURTHER READINGS AND REFERENCES
- Haverstock, E. 2021. “Elon Musk Is The First Person Worth More Than $300 Billion.” Forbes. Available online
- Higgins, T. 2020. “Elon Musk, Tech’s Cash-Poor Billionaire.” The Wall Street Journal. Available online
- Pendleton, D. 2021. “Elon Musk Will Become A Trillionaire With SpaceX, Morgan Stanley Says.” Bloomberg. Available online