The visionary CEO gave the strongest hint yet he may be seriously thinking about consolidating the various business interests of his sprawling corporate empire under one roof.

Ever since Musk confided late last week that he was hard at work on Tesla’s third master plan six years after “Part Deux,” investors have been speculating furiously about what this might entail. 

Early Monday morning he lifted the veil slightly to confirm, via Twitter, that SpaceX and the Boring Company would play a role in Tesla’s strategy going forward. 

Musk also said he would be scaling the car business to an “extreme size,” which could be a reference to formalizing his target of selling 20 million vehicles annually in 2030. Representing more than what industry leaders Toyota Motor and Volkswagen Group together sell worldwide, this gargantuan figure represents Musk’s goal of annually replacing 1% of the world’s existing fleet of 2 billion combustion engine cars. 

Additionally, artificial intelligence is set to play a main role, according to Musk. This could be a reference to the Optimus robot project he said would be his primary focus this year, despite a lack of any proof of concept since the idea was first floated last August. 

However, when leading Tesla influencer Sawyer Merritt asked via Twitter what role Musk’s controversial brain-implant startup Neuralink might play, there was no response from the enigmatic CEO. Neuralink, which plans to conduct its first clinical test of a brain-computer interface this year, has been in the headlines recently for everything from misleading regulators to problems with its corporate culture to even killing chimpanzees. 

$3 trillion market cap

Musk’s hints at part three of his master plan confirm, at least in part, some of the predictions from Morgan Stanley’s team of Tesla equity analysts. They had surmised in a research note last Thursday that the two privately owned branches of what they called the “Muskonomy”—those involved in spacefaring and tunnel-building—could dock onto the carmaker. 

Referring to ties between Tesla and SpaceX’s Starlink unit, which provides broadband internet via a web of satellites in low earth orbit, they wrote: “We have long seen the link between LEO sat comms and next gen transport networks.”

Speculation about an overarching holding company that ties together the various strands of Musk’s business empire has been rife ever since the centibillionaire remarked in December 2020 that it was a good idea. 

For Musk bulls, an X holding group could command the kind of 50-times-earnings valuation multiples that are typical of high growth companies, possibly positioning X as the world’s next $3 trillion market cap company after Apple. 

For bears, Musk’s search for a new corporate story to pump is further proof that the actual product Musk sells is neither fully autonomous vehicles, nor rockets to Mars, nor humanoid robots, but rather the stock itself. While progress on the four pillars of the second master plan set out in 2016 has been made, arguably none has actually been achieved. Moreover, the Boring Company’s hyperloop plans for Las Vegas were heavily ratcheted back—from the original futuristic concept to a plain-vanilla underground tunnel serviced by human-driven Tesla cars.

Courtesy of Tesla

Break the mould

The merging of different businesses has precedent at the company. In 2017, Tesla dropped the word “Motors” from its name to better reflect its expansion into ancillary services such as its oft-maligned acquisition of photovoltaic roof manufacturer SolarCity. 

Yet while Musk fans argue the company is much more than just an automaker, 88% of Tesla’s turnover last year came from the delivery of passenger cars and related software sales, including the non-deferred revenue from its full self-driving (FSD) option. 

More important, cars accounted for its entire gross profit. Taken together, the rest of Tesla’s operations, including its solar rooftop and energy storage installations, remain loss-making.

In the note from Thursday, Morgan Stanley argued cars would have to take a back seat to other endeavors in order to justify the stock’s already hefty valuation multiples—or push them even higher. 

The investment bank expects Tesla to break out of the auto industry’s traditional ownership model by shifting toward more recurring revenue from software sales, such as from monthly subscriptions to its partially automated FSD feature.

The ownership model used by legacy carmakers is based on the one-time delivery of a vehicle as the principal source of revenue. Under it, the next available revenue opportunity comes when customers trade in their existing car for a new one several years later.

“If Tesla’s share price were to multiply from here, we believe it will have rather little to do with the core business of making and selling cars in the traditional model so familiar to auto analysts,” Morgan Stanley argued. 

Investors will ultimately have to wait until Musk’s next Twitter drop to learn more about Master Plan Part 3, as he will not likely attend the first-quarter earnings call at the end of next month.