Is the ubiquitous Elon Musk really the world's richest man?

Elon Musk has seemingly been everywhere in global media through the festive season and always described as “the world's richest man,” a great innovator, a serial entrepreneur, a mad genius, and even a modern-day “Renaissance man.”

Despite his feuding with Maga anti-immigration diehards, it's clear he won't be going away from the public eye in a hurry since incoming US President Donald Trump has shoulder-tapped Musk and fellow entrepreneur Vivek Ramaswamy to head the non-existent US Department of Government Efficiency – Doge for short.

(That's named after the cryptocurrency Dogecoin, which was invented as a joke about the lack of substance of crypto, but which nevertheless had a market capitalisation of US$51.54 billion when I checked on Wednesday, at least in part because Musk has promoted it on X, formerly Twitter.)

I say non-existent because in the US, Congress has the power of the purse, which includes creating government departments, and it hasn't created Doge, at least not yet.

But could it be that “world's richest man” is as wildly inaccurate to describe Musk as the term “billionaire” is when applied to Trump?

When I looked at the Tesla share price and related ratios a few days ago, it was trading at a price-to-earnings ratio of about 114 times.

Yep, that's right: investors thought Tesla was worth 114 times its earnings. It's come down a bit since but is still well above 100 times.

Competitor comparisons

By contrast, Ford's PE ratio was 11 times and General Motors' was just 5.6 times on Wednesday our time.

Tesla delivered 495,570 vehicles in the December quarter, a 2.3% increase on the previous December quarter but below analysts' expectations, and nearly 1.8 million in calendar 2024, which was down 1.1% on 2023 – it will announce its financial results on Jan 29.

Ford delivered nearly 2.1 million vehicles in 2024, up 4%, while General Motors delivered 2.7 million vehicles, also up 4%.

Tesla's share price fall is not because Musk has been interfering in both Germany and Britain's politics – reportedly he's been tweeting an average of 62 posts a day in the first week of the year – but because a regulator is investigating Tesla's Smart Summon feature that allows owners to move their cars remotely and because analysts have been downgrading their recommendations.

Apparently, the regulator has received complaints that the technology is failing to detect obstacles, such as other parked cars, resulting in crashes.

That doesn't bode well for the full self-driving (FSD) future Musk has confidently predicted.

Truist Securities analyst William Stein has tried out Tesla's FSD a number of times, including with his teenaged son, and the 16-year-old boy “came away terrified,” Stein said after a tryout in August last year, and suggested Tesla might be training its FSD with New York city taxi drivers.

Recommendation downgrades

As well, a few analysts have been downgrading their views on Tesla.

JP Morgan analyst Ryan Brinkman, for example, has written that Tesla may lose as much as 40% of its profits because of the likely removal of subsidies by the incoming Trump administration.

The Federal US government has a Consumer Tax Credit for electric vehicles bought in 2023 or later which is worth at least US$2,500 per car, while the California Air Resources Board bestows credits for zero-emission vehicles and Brinkman estimates the two contributed about US$3.2 billion to Tesla's earnings before interest and tax (ebit) in calendar 2024 – he estimates the company's total ebit for the year will have been $8.3 billion.

“The slowing of deliveries, even ahead of a likely subsidy removal, we think has the potential to refocus investors on the deterioration of deliveries, revenue, gross profit, ebit, earnings per share, and free cash flow,” Brinkman wrote.

"Tesla appears to have the most to lose from the shifting regulatory backdrop,” he wrote. He has a 12-month target price of US$135 – the stock has traded between US$138.80 and US$488.54 in the last 12 months.

Bank of America also downgraded the stock from “buy” to “neutral.” although it still has a 12-month target price of US$490, and says the company has a high “execution risk.”

Soaring share price

Tesla's share price jumped as much as 88% to a peak at US$488.54 between Nov 5, the date of the US presidential election, and Dec 19, taking its value from nearly US$780 billion to more than $1,568 billion.

Musk plowed US$250 million into the effort to get Trump elected so the face-value increase in Tesla’s worth looks like a handsome return on investment.

The shares have since dropped to US$394.94 at Wednesday's close.

Part of the difficulty in assessing Musk's wealth is that Tesla is the only one of his companies that's listed – Musk owns 13% of Tesla.

In December, SpaceX, which owns the Starlink conducted a funding round, selling US$1.25 billion of shares that values all of SpaceX at US$360 billion, making it the world's most valuable privately-owned startup – Musk owns 42% of SpaceX, according to Forbes magazine.

So if you believe that SpaceX valuation and the current market valuation of Tesla, then Musk's wealth from those two holdings alone is US$307 billion, and that is enough to put his wealth well ahead of the second richest man, Jeff Bezos, who is worth about US$236 billion, according to Forbes.

But Musk also owns or has stakes in other businesses including Neuralink, a company planning to insert electronic chips in human brains, xAI, an artificial intelligence company which has a chatbot called Grok, The Boring Company, which plans to solve city traffic congestion by building underground transport networks, solar energy company SolarCity, and X, formerly Twitter, for which he paid US$44 billion in October 2022.

In December, the Bloomberg Billionaires Index put Musk's net worth at US$486 billion.

Believeable valuations?

But do you believe the SpaceX valuation? Certainly you could say that those involved in the venture capital business are canny investors and would be careful about ensuring they were getting value for money.

On the other hand, you could say investors tend to behave like reef fish and that they're buying the image of Musk being a magic creator of wealth.

Consider, the latest SpaceX capital raise was at $185 per share, which is nearly two-thirds higher than the US$112 price it had last sold shares at.

According to Fortune magazine, in November last year, SpaceX was talking about a US$255 billion valuation post the latest capital raise and, in early 2023, it was said to be worth US$137 billion, according to Bloomberg.

One reason for doubting the judgement of those canny investors who participated in the latest capital raising is Musk's track record since he bought Twitter, now renamed X.

He knew before he bought the social media platform that the US$44 billion he had pledged to pay was too much, but he wasn't able to legally back out of the deal, though he did try.

The BBC puts X's current value at just US$19 billion while mutual fund Fidelity puts it at just US$12.5 billion.

That’s because under Musk's “free speech absolutist” management (which clearly doesn't apply to anybody daring to criticise Musk), advertisers have fled en masse because they didn't want their brands associated with the cess pit X has become.

Suing departing advertisers

I've never been on Twitter or X, so I'm relying on the judgement of others for that previous statement.

But famously Musk initiated legal action against the World Federation of Advertisers and several major companies, including Mars and Unilever, in August last year, alleging that they conspired to boycott the site.

Musk owns 79% of X and also borrowed US$13.5 billion to help finance the buyout. A US$44 billion purchase that's now worth only US$12.5 billion or US$19 billion doesn't look like a canny investment to me.

It also appears much of Musk's success in his various businesses has been heavily dependent on government assistance rather than his own sheer business acumen.

As already noted, Tesla has been greatly assisted by governments wanting to promote the uptake of electric vehicles.

Certainly, SpaceX, which Musk founded in 2002 with the US$165 million proceeds from the sale of his stake in PayPal, has signed contracts with NASA worth nearly US$20 billion, according to USASpending.gov.

Some of the PayPal proceeds were also invested in Tesla, which was founded in 2003 by Martin Eberhard and Marc Tarpenning with Musk becoming chair in 2004 and chief executive in October 2008.

So much of Musk's wealth estimates involve adding up what look very like a series of bubbles, so I can't answer my own question.