Musk floats Tesla 'terafab' chip plant & Intel talks

Elon Musk told Tesla shareholders the carmaker may need to build a large semiconductor fabrication plant to secure enough artificial intelligence chip capacity, and that it could hold talks with Intel.

He raised the idea at Tesla's annual meeting, saying suppliers could not meet the chip volumes he expects the company will need, even in an optimistic scenario.

"So I think we may have to do a Tesla terafab. It's like giga but way bigger. I can't see any other way to get to the volume of chips that we're looking for. So I think we're probably going to have to build a gigantic chip fab. It's got to be done," Musk said.

He also pointed to Intel as a possible partner, telling shareholders Tesla might "maybe... do something with Intel," but that no deal had been signed.

Chip roadmap

Tesla has been developing its own AI chips for use across its vehicle and robotics programmes, while relying on external manufacturers for production.

It works with TSMC and Samsung on its AI5 and AI6 chips, with production across multiple sites, including TSMC's operations in Arizona and Taiwan and Samsung's in South Korea and Texas.

Tesla agreed a USD $16.5 billion deal with Samsung in July 2025 to manufacture its AI6 chip. Musk has since said Samsung would also help produce versions of the AI5 chip, which had previously been expected to be made only by TSMC.

In a post on X earlier this week, Musk said there would be "slightly different versions of the Tesla AI5 chip" made at TSMC and Samsung. He attributed this to differences in how each company translates designs into physical chips, adding that Tesla's AI software should behave the same on both versions.

"We will have samples and maybe a small number of units in 2026, but high volume production is only possible in 2027," the post continued. "AI6 will use the same fabs, but achieve roughly 2X performance. Aiming for a fast follow to AI5, so hopefully mid 2028 for volume production of AI6. AI7 will need different fabs, as it is more adventurous."

Terafab proposal

Musk described a hypothetical Tesla fab capable of producing 100,000 wafers a month. He said it would output a power-efficient chip tailored to Tesla's software requirements.

He also set cost targets relative to Nvidia's latest chips, saying the chip would cost about ten percent of Nvidia's Blackwell GPUs to produce.

The remarks suggest a shift from reliance on external foundries towards a more vertically integrated approach. Building and operating a large fab would also add significant complexity, long lead times, and major capital requirements.

Intel angle

Musk's reference to Intel comes as the US chipmaker seeks more external customers and partners for its manufacturing business, positioning itself as a domestic supplier with an established US fabrication footprint.

Intel's Ocotillo campus in Chandler, Arizona, hosts several fabs. In early October, Intel said Fab 52 at the site was fully operational and that it is the fifth high-volume fab at Ocotillo.

Fab 52 is expected to mass-produce upcoming processors across Intel's Core Ultra series 3 and Xeon 6+ lines. Intel has also identified additional manufacturing sites in New Mexico, Ohio, and Oregon, alongside expansion plans in Europe and South America.

Despite its footprint, Intel has faced pressure in both chip design and manufacturing, losing market share to rivals. Earlier this year, Chief Executive Officer Lip-Bu Tan said Intel would proceed with its 14A process node only if it secured a "meaningful external customer" that could deliver acceptable returns on invested capital.

Recent reports have pointed to Intel approaching multiple potential partners, including Apple. Intel has also been linked to talks with SambaNova about a possible acquisition.

Intel has announced new funding arrangements and strategic deals, including a USD $2 billion SoftBank investment in August and a USD $5 billion Nvidia investment last week under an agreement focused on jointly developing custom data centre and personal computing hardware.

In August, the US government said it had taken a 9.9 percent stake in Intel after investing USD $8.9 billion.

For Tesla, moving into chip fabrication would place it among a small group of companies with direct control over advanced manufacturing. Musk framed the idea as a response to supply constraints rather than a near-term plan, saying Tesla has no agreement with Intel but that talks could be worthwhile.