Chips, breaking news! Musk just announced!

Elon Musk is building a chip factory!

Just now, Tesla CEO Elon Musk announced on social media that SpaceX and Tesla will live stream on the X platform around 8 p.m. Central Time in the U.S. to officially unveil the “Terafab” chip factory project. Tesla also posted that the company is partnering with SpaceX and AI company xAI to build the largest chip manufacturing plant in history.

According to reports, the “Terafab” project aims to produce over 1 terawatt of computing power annually (logic, memory, and packaging), with about 80% for space applications and 20% for ground.

Musk plans to build the world’s largest chip factory

Tesla’s self-built chip factory “Terafab” project is about to launch.

On March 21, U.S. time, Musk announced on X: “SpaceX and Tesla will live stream around 8 p.m. Central Time today to officially announce the ‘Terafab’ project. The goal is to produce over 1 terawatt of computing power annually (including logic chips, memory chips, and advanced packaging), with approximately 80% for space and 20% for ground applications.”

Meanwhile, Tesla posted: “In partnership with SpaceX and AI company xAI, we are building the largest chip manufacturing plant in history (annual capacity of 1 terawatt), integrating logic chips, memory chips, and advanced packaging technology.”

Tesla stated, “To maximize solar energy utilization (000591), we need to launch 100 million tons of equipment into space each year to capture solar energy. This requires large-scale deployment: the capability to launch hundreds of millions of tons of supplies into orbit; solar-powered AI satellites; and millions of Tesla TeraBots participating in construction.”

Tesla explained that all these devices require chips for support, with just the TeraBots needing 100 to 200 gigawatts of chips, and the solar AI satellites requiring terawatt-level chip supplies. This demand far exceeds the total capacity of all current global chip manufacturers, and even by 2030 (based on capacity growth forecasts), it won’t be enough. “We are building a trillion-dollar factory to bridge the gap between current chip capacity and future demand, creating a future for interstellar civilization,” Tesla wrote.

Leading in AI chip development?

Currently, most of Tesla’s revenue still comes from electric vehicle sales, but its CEO Musk has stated that in the long run, future projects will generate several times that amount. Over the past decade, these projects include autonomous driving technology, and since 2021, humanoid robots have been added. At the recent shareholders’ meeting, another plan was introduced: Musk said that because products like EVs and robots require large amounts of AI chips, Tesla is likely to build a massive proprietary factory for them.

Foreign media pointed out that, similar to Tesla’s previous battery industry layout, Tesla aims not just to participate but to lead in this new business area: Musk wrote in November last year that he expects the ultimate AI chip production to surpass the combined output of all other manufacturers. Currently, Tesla’s Autopilot and FSD processors are outsourced to Samsung and TSMC. The fourth-generation hardware (HW4) is in use, and Musk said significant progress has been made in preparing the next-generation AI5 chips.

Musk has previously previewed the AI5 chip and reiterated that Tesla is working with TSMC and Samsung. These AI chips support Tesla’s autonomous driving systems, including its full self-driving software.

At the November 2025 annual shareholders’ meeting, Musk first publicly mentioned the “Terafab” concept, saying, “Even the most optimistic forecasts for wafer foundries can’t meet our needs.” “So I think we may have to build a Tesla TeraFab. It’s like a super factory, but much larger. I can’t think of any other way to achieve the chip output we need. So I believe we might have to build a huge chip factory. This must be done,” Musk said.

At the January earnings call this year, Musk further clarified that Tesla needs to build a “very large wafer factory in the U.S. that covers logic, memory, and packaging.”

According to media reports, the “Terafab” project plans to adopt 2nm process technology, integrating logic chips, memory chips, and advanced packaging within the same campus, with an annual output target of about 10 to 20 billion chips.

Recently, Morgan Stanley analyst Andrew Perko said, “If Tesla achieves its long-term goal for Optimus (producing over 100 million units annually), it will require over 200 million chips, more than 50 times the current demand for its cars and robot taxis.”

However, entering semiconductor manufacturing is no easy feat. Building a chip factory costs billions of dollars, and chip R&D requires tens of billions more.

Tesla generated about $6 billion in free cash flow in 2025 but is not expected to generate positive free cash flow in 2026. The company plans to invest $20 billion in new equipment, far above the less than $9 billion spent in 2025.

Building a chip factory is a high-risk, costly endeavor, but Tesla may have no other choice. Zacks Investment Research stock strategist Andrew Rocco said, “Currently, due to chip shortages and supply chain bottlenecks, obtaining enough high-performance AI chips is becoming increasingly difficult.”

Ensuring sufficient supply and reducing reliance on external chip supply chains are critical for Tesla’s growth plans. Rocco stated, “Tesla’s Terafab project will ensure self-sufficiency. As Tesla shifts further from traditional EVs to AI, this project is vital for the company’s success.”

Tesla is unlikely to bear all costs of building any chip factory alone. Rocco believes Tesla will adopt a hybrid model, seeking partners to co-invest.

However, Tesla might also choose not to bring in funding partners. Wedbush analyst Dan Ives said, “We believe Terafab will be a project funded independently by Tesla, in collaboration with potential chip partners. It’s a smart move and part of Musk and Tesla’s broader AI strategy.” Today, Tesla’s stock value is entirely tied to AI. If a chip factory can help Tesla execute its AI strategy, investors are likely to support Musk’s plan.

Editor: Yang Yucheng

Layout: Liu Junyu

Proofreading: Zhao Yan

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