Tesla CEO Elon Musk said on Sunday that the company plans to build two advanced chip fabrication plants at a large site in Austin, Texas. One facility will provide computing power for vehicles and humanoid robots, while the other will produce chips for AI data centers deployed in space.

The announcement follows Musk’s earlier statement about building an advanced AI chip complex in Austin called “TeraFab.” According to Musk, TeraFab will technically consist of two wafer fabs, each dedicated to producing a single chip design. The project aims to achieve more than 1 terawatt (1,000 gigawatts) of compute capacity annually, covering logic, memory, and advanced packaging. It will be jointly initiated by SpaceX, Tesla, and xAI.

The first mass-produced chip, AI5, is expected to enter production in 2027 and will be used for Full Self-Driving (FSD), the Optimus humanoid robot, Cybercab robotaxis, and data centers.

TeraFab is planned to produce 100–200 billion AI and memory chips annually, equivalent to roughly 100,000 wafer starts per month. Total investment is estimated at $20 billion. Musk also revealed that about 80% of the factory’s capacity will be allocated to space-related applications, with the remaining 20% serving terrestrial uses.

If realized, this would be one of the largest semiconductor manufacturing initiatives ever undertaken by a private company. It could position Tesla among the world’s largest chipmakers and reduce its reliance on external suppliers such as TSMC and Samsung, allowing it to control the entire AI stack from chips to software. The project would also represent one of Tesla’s largest capital investments, backed by its $44 billion cash reserves and Musk’s long-term AI vision.

However, the TeraFab project faces significant financial hurdles. Industry estimates suggest that building a single advanced 2-nanometer fab can cost between $25 billion and $40 billion, with construction timelines of three to five years—posing substantial pressure on Tesla’s finances.

Financial data shows Tesla’s revenue fell 3% year-on-year to $94.8 billion in 2025, while net profit dropped 46% to $3.79 billion. Although the company holds over $44 billion in cash and investments, its capital expenditure budget for 2026 has already exceeded $20 billion, excluding the full cost of TeraFab. Analysts believe Tesla may need to rely on equity financing to support the project.

Market Insight:
The joint chip initiative by Tesla, SpaceX, and xAI could enable more efficient allocation of computing resources across multiple scenarios, creating a new model for the integration of AI and aerospace industries. Despite significant challenges, if successfully executed, the project could enhance the resilience and diversity of the global semiconductor industry.