Tesla jumps on Musk’s $20bn AI chip push
Tesla shares climbed around 3.5 per cent on Monday after Elon Musk unveiled plans for Terafab, a huge semiconductor manufacturing project aimed at securing chip supply for the company’s next phase of growth.
The stock rose to about $381 as investors responded positively to the announcement, as the firm looks beyond electric vehicles into AI and in-house chip production.
Musk described the project as essential to Tesla’s future, saying: “We either build the Terafab or we don’t have the chips.”
The facility, set to be built in Austin alongside Tesla’s existing Gigafactory, will form part of a joint venture between Tesla, SpaceX and xAI.
It is designed to bring the firm’s chip design, manufacturing and packaging under one roof.
AI ambitions woo investors
Tesla’s valuation is increasingly tied to its technology ambitions rather than its core car business.
Analysts say investors have been willing to look past flat or declining vehicle sales, instead focusing on growth areas such as autonomous driving and the Optimus humanoid robot.
Prior to his recent push, Musk has repeatedly warned that chip supply could become a bottleneck for Tesla’s future products, particularly as it scales robotaxis and robotics.
His Terafab project will produce two main types of chips: one for Tesla’s self-driving systems and robots, and another designed for high-performance AI computing, including potential use in SpaceX’s satellite-based data infrastructure.
Demand is expected to be snowball, with Morgan Stanley estimating Tesla’s robotics ambitions alone to require tens of millions of chips annually, far exceeding current automotive needs.
Cost and execution
Despite the positive market reaction in the wake of Musk’s announcement, the scale and the cost of the project could become substantial bottlenecks.
Terafab is expected to cost between $20bn and $25bn, with some estimates showing it could ultimately reach as high as $35bn to $40bn.
This comes on top of Tesla’s existing plans to deploy over $20bn on cap ex in 2026, which is more than double the previous year.
Initial chip production is targeted for late 2027, with volume output expected around 2028, though timelines for semiconductor facilities are notoriously subject to delays.
Tesla will continue to rely on suppliers like Nvidia, Samsung and TSMC in the near term, casting Terafab as a long-term capacity play rather than immediate replacement for existing partnerships.
The announcement also comes as the firm lost its position as the world’s leading EV seller to BYD at the end of last year, while regulatory scrutiny continues to bubble around its full self-driving system, with millions of vehicles under review.
And at the same time, broader market sentiment has been supported by easing geopolitical tensions, which helped lift risk appetite on Monday.