Elon Musk, founder and CEO of Tesla, has outlined plans for Terafab, a large-scale semiconductor project that would bring chip design, fabrication, memory, and packaging into a single facility in Austin, Texas, as his companies face rising demand for AI hardware.
The project, involving Tesla, SpaceX, and xAI, is expected to cost US$ 20 billion to US$ 25 billion initially, with estimates from Morgan Stanley putting total investment closer to US$ 35 billion to US$ 45 billion. It will be located at the North Campus of Giga Texas and is planned to exceed the scale of Tesla’s existing factory as reported by Business Insider.
SpaceX officially announced Terafab on X and described it as ‘the next step towards becoming a galactic civilization.’ Musk framed the effort as a response to supply constraints from established chipmakers such as TSMC and Samsung.
“We either build the Terafab or we don’t have the chips, and we need the chips, so we build the Terafab,” Musk said. “There’s a maximum rate at which they’re comfortable expanding. That rate is much less than we would like, current global AI compute output is a fraction of what his companies expect to require.”
Terafab is designed to produce two categories of chips, edge processors for Tesla’s Full Self-Driving systems, Robotaxi fleet, and Optimus humanoid robots, and radiation-hardened chips for use in SpaceX satellites and potential orbital data centers.
The scale of demand is tied largely to Tesla’s robotics ambitions. Andrew Percoco estimates that a single facility in Texas could support production of 10 million robots annually, requiring about 20 million chips roughly six times Tesla’s current automotive demand. Musk has set a longer-term goal of 100 million robots per year, implying more than 200 million chips annually.
The project targets 2-nanometer manufacturing, a leading-edge process only beginning to be deployed by existing suppliers. Musk also set a goal of producing more than one terawatt of AI computing capacity per year, with much of it intended for space-based systems.
Analyst, Andrew Percoco, described Terafab as a high-risk, capital-intensive effort that would require building expertise in advanced semiconductor manufacturing from scratch.
The project comes as SpaceX is reportedly considering an IPO, adding pressure to demonstrate long-term growth drivers tied to AI and space infrastructure. No official timeline for construction or output was given, though it is estimated that initial production would not begin before mid-2028, even under an aggressive schedule.