So, what is Motorola's incentive here? I love it, but why are they pursuing this? It's an enterprise / government play around auditable privacy and security?

They know their software and update story sucks, so partnering with a company which promises to handle all that and they have an existing audience means they'll sell a lot more of that model.

GrapheneOS currently has like half a million users and growing. And many of those users would love to not be forced to have a Google Pixel (even if those are really good phone).

The question for Motorola is: "given the cost of meeting GrapheneOS' requirements, how many more devices will we sell?". Hundreds of thousands of devices is not nothing, I guess. Plus they get free consulting from the team building the most secure phone OS out there.

I really don't understand why smaller smartphone manufacturers didn't fight before for that. Say Fairphone: I don't know about today, but a few years ago they finally got profitable by selling something like 200 thousands units a year. If they had designed a phone to be supported by GrapheneOS, that would surely have increased their sales quite a bit. Now that ship has sailed, GrapheneOS will be focused on Motorola for a few years.

My guess is that this is a great way for them to standout, fill a niche, and get tons of free advertisements in order to gain back some of their Android market share.

Motorola has effectively lost in the Android market and are on downward spiral into irrelevance (already there?), so they have to do something different.

Digital sovereignty. Europe is a big market and Motorola could gain traction this way

Sell devices who want to get out of the grip of US software monopolies. This is not unpopular in the rest of the world.