Musk's "trillion-dollar compensation package": opens up the "imagination space" for Tesla's robots, leaving room for xAI merger

Tesla's recently disclosed long-term compensation plan for Musk has significance far beyond the compensation itself. This new ten-year compensation plan aims to alleviate investors' concerns about Musk potentially shifting his focus to other companies such as xAI and SpaceX.

According to news from the Wind Trading Desk, Morgan Stanley analyst Adam Jonas and others stated in a research report released on the 7th that as Tesla increasingly delves into the commercialization of physical artificial intelligence, Musk has expressed a desire to hold at least 25% of the company's shares to have veto power in the event of a potential change in company control, and the new plan conveniently provides an incentive path for this.

The most important signal of the plan lies in its compensation structure design. These targets not only include traditional business metrics such as delivery volume and autonomous driving software subscriptions but also, for the first time, incorporate the delivery volume of "Bots" and the astonishing growth of "adjusted EBITDA" as core assessment criteria.

It is noteworthy that the plan also includes a key clause allowing for adjustments to performance targets in the event of a "significant" acquisition, which analysts interpret as paving the way for a potential merger between Tesla and Musk's artificial intelligence company xAI. In Morgan Stanley's view, this compensation plan represents a "good deal" for Tesla shareholders, as it closely aligns Musk's personal interests with the creation of shareholder value through the integration of operational, profitability, and market capitalization targets.

Locking in Musk, Eliminating Core Uncertainty

According to the documents, the latest CEO reward is valued at $87.8 billion, and if Musk meets all performance targets and receives all restricted stock, that figure could swell to approximately $1 trillion. The proxy statement also stipulates that Musk must participate in the board's formulation of a long-term CEO succession framework to receive the final two parts of the performance rewards.

This highly anticipated proposal includes expanding Tesla's autonomous taxi business and increasing the company's market capitalization from the current approximately $1 trillion to at least $8.5 trillion. The plan spans ten years.

In recent years, investors have consistently expressed concerns about Musk's long-term commitment, fearing that his involvement in companies like SpaceX and xAI would distract him from his focus and time at Tesla. This new compensation plan aims to completely dispel that doubt.

The report notes that Musk has clearly stated his desire to hold at least 25% of Tesla as a "blocking minority stake" to ensure he has a voice in the event of a potential change in company control. This long-term incentive plan, deeply tied to high market capitalization and operational goals, firmly binds Musk's personal interests to Tesla's future, providing certainty for investors. As Tesla is on the verge of large-scale commercialization of sensitive humanoid robots, this plan incentivizes Musk to focus on Tesla more than ever before

Ambitious Goals: The Focus is on Robots, Not Just Cars

The compensation plan sets 12 operational milestones and multiple adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) milestones. Morgan Stanley analysts compared these with their own forecasting models, believing that while some targets are challenging, they are not unattainable, whereas others exceed expectations.

On the operational front, Morgan Stanley expects:

• 20 million vehicles delivered: The firm's base forecast suggests Tesla will achieve this target in fiscal year 2029.
• 10 million active FSD subscriptions: Expected to be reached by 2032.
• 1 million Robotaxis in commercial operation: Expected to be achieved by 2036.

However, the targets for profitability appear more aggressive. Morgan Stanley's base scenario predicts Tesla's adjusted EBITDA will be approximately $70 billion in fiscal year 2030, rising to about $230 billion by 2040. This means that the lower EBITDA targets in the compensation plan (such as $50 billion and $80 billion) can be achieved within their forecast period, but the final EBITDA target of $400 billion is "far more aggressive" than the firm's combined forecasts for automotive, energy, network services, and Robotaxi businesses.

Analysts emphasized in the report that achieving such high profitability targets will require a significant contribution from "Optimus robots and other AI robotic terminal markets currently not included in our forecasts." This directly ties Musk's compensation to Tesla's success or failure in the robotics sector.

Redefining "Robots": Beyond Humanoids

One particularly striking detail in the compensation plan is the definition of "robots" (Bot). The report highlights the significance of setting "delivering 1 million robots" as one of the operational goals.

According to the proposal's disclosure, Tesla defines "Bot" as "any robot or other entity product manufactured by the company or on behalf of the company that achieves mobility using artificial intelligence, including Optimus and any subsequent products, alternatives, or enhancements," explicitly stating that "no vehicle should be considered a robot."

Morgan Stanley believes this broad definition opens up vast imaginative possibilities for Tesla. It suggests that Tesla's goals may extend far beyond the Optimus humanoid robot to encompass "a wide variety of robotic types," potentially including robotic arms, autonomous mobile robots (AMRs), non-vehicle drones, serpentine or canine robots, and even space robots and robotic implants. Analysts point out that the global workforce generates nearly $40 trillion in wage income annually, and the market size for robots is immeasurable, representing one of the largest potential markets (TAM) investors can envision

Reserve "Interface" for xAI Merger

Speculation about a merger between Tesla and xAI has been ongoing for a long time. A report from Morgan Stanley states that, based on recent investor communications, the possibility of such a merger "now seems to have become a consensus." On one hand, the valuations of pure AI competitors are rapidly increasing, while on the other hand, the upcoming shareholder proposals also involve Tesla's potential investment in xAI.

The design of this compensation plan provides a clear institutional arrangement for this possibility. The report points out that to prevent the calculation of market capitalization milestones from being affected by acquisition activities, the plan includes supplementary clauses: "Market capitalization and adjusted EBITDA milestone targets may be adjusted to account for Tesla acquisition activities that are deemed to have a significant impact on milestone achievement."

Analysts believe that this wording reserves a flexible "interface" for Tesla's future integration with xAI, ensuring that even in the event of such a significant merger, the framework of the compensation incentive plan remains effective. This sends a clear signal to the market: the synergy and integration of the two companies are already part of Tesla's long-term strategic considerations