Chip Breaking News! Musk Just Announced! Plans to Build World's Largest Chip Factory

Elon Musk is building a chip factory!

Just now, Tesla CEO Elon Musk announced on social media that SpaceX and Tesla will livestream on the X platform around 8 p.m. Central Time in the United States to officially unveil the “Terafab” chip manufacturing project. Tesla also posted that the company is collaborating with SpaceX and AI company xAI to construct the largest chip factory in history.

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

Musk plans to build the world’s largest chip factory

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

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

At the same time, 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, 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 TelsaBots involved in construction.”

Tesla explained that all these devices require chips; TelsaBots alone need between 100 and 200 gigawatts of chips, and solar AI satellites demand 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 will not be sufficient. “We are building a trillion-dollar factory to bridge the gap between current chip production and future demand, creating a future for interstellar civilization,” Tesla wrote.

Leading in the AI chip field?

Currently, most of Tesla’s revenue still comes from electric vehicle sales, but its CEO Musk has stated that in the long term, the profits from future projects will be several times higher. 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大量人工智能芯片，特斯拉很可能会为此建造一座巨型自有工厂。

Some foreign media pointed out that, similar to Tesla’s previous layout in the battery sector, Tesla’s involvement in this new business area is not just participation but aiming to lead: Musk wrote in November last year that he expects the final AI chip output to surpass the combined total of all other manufacturers. Currently, Tesla’s Autopilot and Full Self-Driving (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 chip.

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

At the November 2025 annual shareholders’ meeting, Musk first publicly mentioned the “Terafab” project, stating, “Even the most optimistic forecasts for wafer foundries can’t meet our needs.” “Therefore, I believe 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 require. We must build a massive chip factory. This is essential,” Musk said.

In 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 use 2nm process technology, integrating logic chips, memory chips, and advanced packaging within a single campus, with an annual production target of approximately 10 to 20 billion chips.

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

However, entering semiconductor manufacturing is no easy task. Building a chip factory costs hundreds of 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.

Constructing a chip factory is a high-risk, costly endeavor, but Tesla may have no other options. 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 electric vehicles 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 approach, seeking partners to co-invest.

However, Tesla might also choose not to bring in financial 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.

(Source: Securities Times)