The package could grant Musk up to 423m additional Tesla shares, potentially increasing his stake to 25% of the company.

It’s structured in 12 tranches with awards tied to market cap and operational targets. The total value could reach $1T if Tesla reaches a market cap of $8.5T by 2035, roughly eight times its current valuation.

One key question is whether a new mega pay package will stand the test of time. Musk’s last package, valued at $56B, faced a legal challenge. The new one is roughly 18x larger, meaning that if he hits all of the milestones, a court challenge is almost inevitable.

My view: because Musk and the board already went through one challenge, the likelihood of another is reduced. Investors voting on this package understand the reality there could be a massive payout and are choosing with eyes wide open.

Tesla’s board is sending a clear message to Musk: they want his attention on Tesla.

More important than the epic potential payout is the simple message the board is sending to Elon: “We want your attention on Tesla.” Implicit in that message is the promise that he’ll have the control he’s been seeking (a 25% stake) and that it will be worth his time.

For Musk it’s not about the money, although being the first person with a trillion dollar pay package certainly serves as motivation. It’s about the ability to go after a massive opportunity, and physical AI represents exactly that. We are still just scratching the surface of physical AI: current use cases are almost comical, limited to nascent robotaxi trials by Waymo and Tesla; eventually, physical AI will impact anything that moves, representing a market potential that’s hard for me to fathom.

There are three clear ways Tesla can capitalize on the potential around physical AI: through FSD, robotaxis, and Optimus, with Optimus being the biggest of these opportunities. In February of 2025, Musk has said Optimus could rewire the global economy,  and “has the potential to generate over $10T in revenue” on a long-term basis. I believe that this humanoid robot line could account for more than half of Tesla’s value in the long run.

All of this talk sounds like a fairy tale (imagine an $8.5T market cap with humanoid robots doing all of our physical work). I pride myself on being grounded in reality, but the reality is that AI will have a bigger impact on our lives than most can imagine. Its ability to give birth to new forms of computing, such as physical AI, is the foundation that can turn that fairy tale into reality.

One last lever in this story is xAI. Elon has said he has no plans to combine Tesla and xAI, but I believe a combination makes sense on three levels:

1. TSLA’s market cap would likely jump on the announcement of a deal, unlocking pent-up retail demand for xAI through Tesla stock.
2. Tesla can leverage xAI’s research to help build its physical AI models.
3. xAI has significant business potential of its own, especially via its Grok AI model (monetized through API access for scientific and research users). Its consumer chatbot is also gaining traction beyond a small base of roughly 20 million daily active users (Deepwater estimate). With xAI’s next funding round rumored at $175–$200B, the company remains small enough for Tesla to consider acquiring within the next year.

Disclaimer