Is Elon Musk really a trillionaire?

By Brian Clegg

The news of late has been full of the fact that American tech entrepreneur Elon Musk has become the first trillionaire, but is that really true? Do any of these ‘x-aire’ titles apply if you couldn’t produce the cash to back it up? Practically everyone who owns a house in the smarter areas of London without a mortgage is a millionaire by this standard – but only if they sold their home and didn’t have anywhere to live anymore.

It’s even worse when your net worth is calculated using shareholdings. Because if you sell a house, the value doesn’t automatically drop as a result of the sale. But if you start selling off large numbers of shares, the value goes down. I’m sure he’d still be worth a lot, but it certainly wouldn’t be a trillion dollars.

Out of interest, I asked Littlebird, the AI I use as a PA and research assistant what it estimated his cash value would be if he sold all his shares. Here’s the short version of its response:

Stacking the haircuts – price collapse on both blocks [of shares], then ~24% tax on the gains – the honest answer is a lot less than $1.3 trillion. A rough, heavily-caveated estimate would land somewhere in the $400-700 billion range, and arguably lower if the SpaceX liquidation went badly*. Still an almost incomprehensible fortune, but perhaps half (or less) of the headline.

The real takeaway: paper net worth for someone this concentrated is a theoretical valuation, not a bank balance. The number works precisely because he doesn’t try to sell. The moment he did, it would shrink dramatically – which is also why the ultra-wealthy borrow against shares rather than sell them.

One honest caveat: the exact size of the price crash is genuinely unknowable – there’s no historical precedent for a single person liquidating positions this large, so anyone giving you a precise figure is guessing. The direction and rough magnitude, though, are not in doubt.

Even so, that number makes for an even more impressive illustration than the one I used to employ when exploring why the mean is often not a useful way to calculate an average. Assuming Musk really is a trillionaire, if he visited Tenerife (or Fiji), the getting on for a million people on the island would, on average, all be millionaires. Even if everyone else was penniless.

* If you want a bit more why there is this proviso about SpaceX, Littlebird said:

Most of his wealth is now in SpaceX, and SpaceX only just IPO’d. That creates two issues:

• Lock-ups. Post-IPO insiders, especially the founder, are typically barred from selling for ~180 days, and Musk’s situation would carry even more scrutiny. He can’t legally dump it on day one.
• Thin float and concentration. A 42% stake is enormous relative to any realistic daily trading volume. Trying to liquidate it would crater the newly-public price far harder than the Tesla effect, since the market hasn’t had years to absorb the float. Realistically he’d take a very steep discount, possibly worse than Tesla’s.

These articles will always be free – but if you’d like to support my online work, consider buying a virtual coffee or taking out a membership: 

See all Brian's online articles or subscribe to a weekly email free here

Now Appearing is the blog of science writer Brian Clegg (www.brianclegg.net), author of Inflight Science, Before the Big Bang and The God Effect.