Elon Musk’s Tesla & SpaceX to Build $25B AI Chip Plant ‘Terafab’

Elon Musk announced plans Saturday to build a massive chip fabrication facility, dubbed “Terafab,” near Austin, Texas, in a joint effort by Tesla, SpaceX, and xAI. The project aims to produce chips powering artificial intelligence, robotics, and data centers, addressing what Musk described as a critical supply bottleneck for his companies.

Speaking at a launch event at the Seaholm power plant in Austin, Musk stated the Terafab project is “the most epic chip building exercise in history by far.” The facility is intended to eventually achieve a combined computing capacity of one terawatt annually, a figure comparable to a significant portion of the United States’ total electrical generating capacity, according to industry estimates.

The $25 billion project, as reported by Electrek, will consolidate all stages of semiconductor production – design, lithography, fabrication, memory production, advanced packaging, and testing – under one roof. Tesla plans to utilize 2-nanometer process technology, currently being pioneered by TSMC, despite having no prior experience in chip manufacturing.

Musk explained the decision to vertically integrate chip production stems from a projected demand exceeding the capacity of existing semiconductor suppliers. “We need the chips, so we’re going to build Terafab,” he said, acknowledging the current reliance on external supply chains. The chips produced will be crucial for Tesla’s Full Self-Driving software, the Cybercab robotaxi program, the Optimus humanoid robot, and SpaceX’s space-based projects, including AI-powered satellites.

The Terafab facility, initially planned for the North Campus of Giga Texas, will begin with 100,000 wafer starts per month, with ambitions to scale to 1 million, representing roughly 70% of TSMC’s current global output. Whereas the main Terafab facility will require thousands of acres and multiple locations are being considered, Musk clarified that the Austin-area facility will initially focus on chip design.

The project’s scale and ambition have drawn attention, with Musk envisioning a future powered by billions of robots and interplanetary travel. Tesla stated in an announcement that Terafab is necessary to “close the gap between today’s chip production & the future’s demand – a future among the stars.”