Tesla Motors CEO Elon Musk announced on Sunday plans to construct two advanced chip fabrication plants at a large facility in Austin, Texas. One plant will produce chips to provide computational power for vehicles and humanoid robots, while the other will manufacture chips for artificial intelligence (AI) data centers deployed in space. This statement followed Musk's announcement the previous day regarding the development of an advanced AI chip complex named "Terafab" in Austin.
In a social media post, Musk stated, "Technically, Terafab will consist of two fabs, with each fab producing only one chip design." Musk had previously announced the construction of TeraFab, described as one of the largest chip manufacturing facilities ever built. The goal for this super factory, named "TeraFab," is to achieve an annual computational power output exceeding 1 terawatt (1000 gigawatts), covering logic, memory, and advanced packaging. The project is a joint initiative by SpaceX, Tesla, and xAI.
Reportedly, TeraFab is planned to have an annual production capacity of 100 to 200 billion AI and memory chips, equivalent to a monthly output of approximately 100,000 wafers. The total investment is estimated at $20 billion. The first mass-produced chips, designated AI5, are scheduled for production in 2027. They are intended for use in Full Self-Driving (FSD) technology, the Optimus humanoid robot, the Cybercab autonomous taxi, and data centers.
Musk further revealed on social media that approximately 80% of the factory's capacity will be dedicated to space applications upon completion, with the remaining 20% allocated for terrestrial uses. He described this as "one of the largest semiconductor manufacturing operations ever planned by a private company," which will "make Tesla one of the world's largest semiconductor manufacturers." This move would eliminate Tesla's reliance on external suppliers like TSMC or Samsung, allowing the company to control every layer of the AI stack from chips to software.
This project represents one of Tesla's largest capital investments, funded from its $44 billion cash reserves and supported by Musk's long-term AI vision. Musk commented, "We are very grateful for the existing supply chain, for companies like Samsung and TSMC, and we hope they can scale up as quickly as possible; we will buy all their chips. I have told them this. There is a cap to the expansion speed they can accept, but that speed is far lower than our expectations, so we are building Terafab."
It is worth noting that Musk first mentioned the concept of building a chip factory at Tesla's annual shareholder meeting in November 2025. He indicated that to support the continuous iteration of Tesla's FSD software and the large-scale deployment of Optimus robots, Tesla's annual chip demand would reach 100 to 200 billion units. Even with the most optimistic expansion forecasts from global foundries, their capacity would be unable to meet Tesla's future explosive demand for AI chips, making the construction of a large-scale wafer fab "imperative."
During a demonstration at an Austin facility on Saturday, Musk pointed out, "Either we build Terafab, or we have no chips."
However, the Terafab project requires a significant financial commitment. Industry insiders note that building a wafer fab utilizing an advanced 2-nanometer process typically requires an investment of $25 to $40 billion, with a construction cycle lasting 3 to 5 years. This poses substantial pressure on Tesla's current financial situation. Data shows that Tesla's full-year 2025 revenue decreased by 3% to $94.8 billion, while net profit saw a significant decline of 46% to $3.79 billion. Although the company holds over $44 billion in cash and investments, its capital expenditure budget for 2026 already exceeds $20 billion, which does not fully cover the massive costs of the Terafab project.
Market analysis suggests that Tesla will likely need to utilize equity financing to support this project. Analysts at Gartner stated that the collaborative chip-making effort by Tesla, SpaceX, and xAI will promote the efficient allocation of computing resources across different scenarios and provide a new paradigm for the integration of AI and the aerospace industry. Despite facing numerous challenges, the project's realization is expected to significantly enhance the resilience and diversity of the global semiconductor industry.
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