What we know about Tesla’s Terafab, the “most epic chip-building exercise in history”

With Tesla’s Terafab project, the company is stepping into uncharted territory. Not only is it planning what could be the largest semiconductor fabrication plant in the world, it’s doing so with virtually no experience in chip manufacturing. Its ambitions are literally out of this world: Tesla has described it as a step toward “becoming a galactic civilization.”

Terafab aims to bring all aspects of chip production — from design to fabrication to packaging — under one roof. CEO Elon Musk said the facility is intended to produce up to 1 terawatt of compute annually.

The goal is to supply Tesla, SpaceX, and xAI with the ballooning number of AI chips they expect to need, since Musk has said existing suppliers, including TSMC, Samsung, and Micron, can’t handle their future demand.

On Tesla’s last earnings call, Musk said chip supply would be a “limiting factor” for Tesla’s growth in about three or four years.

The plant would manufacture inference chips for Tesla’s Robotaxis and Optimus robots, as well as custom AI chips for space-based applications, including solar-powered AI satellites. Morgan Stanley estimates the project could cost $35 billion to $45 billion in capital expenditure, likely shared between Tesla and SpaceX.

Early reports suggested Terafab could be located on the north side of Tesla’s Giga Texas facility, based on a slide Musk presented showing an “Advanced Technology Fab” there. But Musk later clarified that this referred only to a smaller facility for iterating on chip designs. The Terafab itself, he said, would be “far bigger than everything else combined” on the Giga Texas campus and require “thousands of acres.”

The Takeaway

Musk has not provided a timeline for the project, but even at his typical breakneck pace, it is likely years away. Building a semiconductor fab is one of the most complex industrial undertakings in the world, typically carried out by established players like TSMC or Intel, and often takes years to complete and ramp.

“Even under an aggressive scenario involving a retrofit of an existing facility, initial chip output would likely not occur until mid-2028 at the earliest,” Morgan Stanley analysts wrote last week. “A greenfield build would extend timelines further, with meaningful output more likely 4-5 years after project initiation.”