- Elon Musk has overtaken Warren Buffett on the Bloomberg Billionaires Index.
- The Tesla CEO is worth $70.5 billion, while the Berkshire Hathaway CEO's fortune stands at $69.2 billion.
- Musk has benefited from Tesla stock skyrocketing in recent weeks, while Buffett has been hurt by Berkshire's underperformance and his donation of shares that would be worth $62 billion today.
- Here are several reasons why Musk's wealth jump above Buffett might not be justified.
- Visit Business Insider's homepage for more stories.
Elon Musk has leapfrogged Warren Buffett in the Bloomberg Billionaires Index to become the world's seventh-richest person with a $70.5 billion fortune. There are several reasons to question whether that's justified.
Musk's net worth primarily reflects the surging value of his 18.5% stake in Tesla. The electric-car maker's stock has tripled in value since March, and rocketed up more than 60-fold since its listing just over a decade ago.
Buffett's fortune largely comprises Berkshire Hathaway Class A shares, plus a few Class B shares, which together give him a 15.5% stake in his conglomerate. He is currently worth about $69 billion, following his donation of about $2.9 billion in stock to five philanthropic organizations last week.
Musk has climbed the billionaire ranks and Buffett has slipped down because Tesla stock is in vogue right now, while Berkshire stock isn't.
A likely reason is investors' excitement about tech companies benefiting from the coronavirus pandemic, even though Tesla isn't an obvious winner.
The FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks have soared in recent months because investors expect people will stream more TV shows and movies, buy more stuff online, and spend more time on their devices using apps such as Instagram and YouTube while they're stuck at home during the pandemic.
However, Tesla stands to lose as consumers take fewer trips and delay big-ticket purchases such as new cars. It also faces slimmer profit margins than pure software companies given the high costs of manufacturing vehicles, potentially weighing on its future growth rate and earnings.
The group also faces fierce competition that could threaten its position as the premier electric automaker. It has to contend with incumbents such as Ford, GM, and Chrysler that are scrambling to catch up with its technology, as well as foreign rivals such as Buffett-backed BYD in China.
Meanwhile, Berkshire stock is down about 20% this year, compared to a roughly 2% decline for the S&P 500.
Commentators argue that Buffett has lost a step in his old age, Berkshire is being crowded out by the Federal Reserve and prevented from striking bailout deals, and the company has the wrong stock portfolio for the crisis.
Yet Berkshire's $94 billion Apple stake, $137 billion in cash as of March 31, and the rest of its stock portfolio are currently worth a combined $344 billion — more than 75% of its $443 billion market capitalization.
David Kass, a finance professor at the University of Maryland, tweeted that fact last weekend, pointing out that it implies the rest of Berkshire is worth only $100 billion.
Berkshire owns dozens of businesses including Geico, See's Candies, MidAmerican Energy, and the Burlington Northern railroad.
It boasted about $375 billion in net assets at last count, meaning its market capitalization values it at less than 1.2 times its book value. Tesla is valued at 20 times book value.
Buffett's company stands to gain whether the pandemic recedes or worsens, Pelican Bay Capital Management chief Tyler Hardt told Business Insider last week.
If the virus threat grows, Buffett will have another chance to hunt for bargains and deploy Berkshire's cash, he said. If it dissipates, the earnings power of Berkshire's businesses will return to the fore, he added.
The difference in Musk and Buffett's fortunes reflects more than valuation. It's also a product of Buffett giving $37 billion in Berkshire stock to charity in the past 14 years, based on the market value of the roughly 226,000 Class A shares when he gifted them.
If Buffett had held on to those shares and that didn't affect Berkshire's stock price, they would be worth about $62 billion today, catapulting him into second place on the billionaire list with a fortune of more than $130 billion.
The fact that Musk has joined the ranks of the 10 wealthiest people in the world, while Buffett has tumbled to his lowest position since the index started in 2012, could signal the beginning of a new era.
It could also indicate that investors' love affair with the electric-car startup has gotten out of hand.
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