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Tesla's Elon Musk Is Now the World's 4th Richest Person

Tesla's surging stock this week places Musk behind only Jeff Bezos, Bill Gates and Mark Zuckerberg in terms of personal wealth.

Tesla  (TSLA) - Get Tesla Inc Report CEO Elon Musk surpassed French luxury tycoon Bernard Arnault to become the fourth-richest person in the world this week. 

Musk gained that distinction alongside a surge in Tesla shares, which rallied 9% on Monday. Given Musk's ownership stake, that amounted to a roughly $7.8 billion increase to his net worth. Tesla  (TSLA) - Get Tesla Inc Report shares gained another 3% on Tuesday, closing at $1,891.86.

Bloomberg's billionaire index estimated Musk's net worth at $84.8 billion as of the end of day Monday, placing him just ahead of Arnault ($84.6 billion) and behind Amazon founder Jeff Bezos ($188 billion), Microsoft co-founder Bill Gates ($121 billion) and Facebook co-founder Mark Zuckerberg ($99 billion). 

His net worth has also more than quadrupled in a matter of months. At a December 2019 defamation trial, Musk testified that his personal net worth was $20 billion, though he said that most of it was tied up in stock in his two companies, Tesla and SpaceX. 

Year to date, Tesla shares have gained more than 340%, adding billions to Musk's wealth through his 18.3% stake in the company, as well as an incentive package that ties his compensation to certain financial and operational milestones. Bloomberg estimates that Musk's wealth has increased by $57.2 billion in 2020, second only to Bezos' gain of $73.0 billion.

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Musk's pay package, which Tesla's board approved in 2018, established 12 successive tranches of stock options that Musk could capture if Tesla's valuation, revenue and adjusted EBIDTA keeps growing.

One of the conditions of the package is for Tesla's valuation to remain at a certain level, on average, for the preceding six months. The first $100 billion valuation milestone, which Tesla achieved in May, qualified Musk for the first tranche. 

In late July, Musk qualified for the second tranche of stock, which required that Tesla hold a market cap of $150 billion for the preceding six months. Each tranche is equivalent to 1.69 million Tesla shares offered to him at the discounted price of $350.02 each; if exercised, the two tranches are worth billions of dollars. 

To qualify for the third tranche of stock, Tesla must maintain an average valuation above $200 billion for six months. 

A $200 billion market cap is equivalent to about $1,078 per share, a price that Tesla initially hit at the end of June. 

Tesla must to continue increasing its revenue and adjusted EBIDTA in escalating increments for Musk to receive the full potential payout, which in total, could be worth tens of billions if Tesla's share price continues to grow and if shares are exercised.