1:45Terafab explained: why Tesla and SpaceX want to build their own chip factory
Terafab is a planned chip complex in Texas, shared by Tesla and SpaceX, with an initial $16.8 billion budget. Here is what it should make, why Musk says he needs it, and the risks.
When Elon Musk talks about why Tesla and SpaceX belong together, one word keeps coming back: Terafab. It is a planned chip manufacturing complex in Texas, shared by both companies, and it has become central to the case for a possible merger. Here is what we know.
What Terafab is
Musk first presented Terafab in Austin in March 2026, describing it as two factories, each making a single chip design:
- Chip one: for Tesla's cars and Optimus robots, including the driverless Cybercab.
- Chip two: a high-power chip for SpaceX's planned AI data centers in space, designed to cope with higher temperatures and harsher conditions.
The money and the location
In August, SpaceX and Tesla announced an initial investment of $16.8 billion for a complex in Grimes County, Texas, northwest of Houston. The plans include more than 100 million square feet of manufacturing space, for developing, packaging and testing advanced logic and memory chips. Water will come from a local reservoir rather than groundwater. Intel is expected to play a role, but the details have not been shared. How the cost is split between Tesla and SpaceX has not been disclosed.
Why Musk says he needs it
Musk's argument is about supply. He expects the combined chip demand of his companies to exceed one terawatt of computing capacity a year, more than the world can currently produce. 'We either build the Terafab or we don't have the chips,' he said in March. Existing suppliers such as Samsung, TSMC and Micron will keep supplying in the meantime.
The risks
- No timeline: no completion date has been given.
- Hard industry: advanced chip factories are among the most complex and expensive projects in the world, and even experienced chipmakers struggle with delays.
- Track record: as Reuters noted, several of Musk's ambitious projects have slipped or been abandoned.
- Cost: Tesla is already spending more than $25 billion on capital projects this year.
Why it matters for Tesla
Self-driving cars and humanoid robots run on powerful AI chips. Owning chip production would give Tesla more control over cost and supply, but it also ties Tesla more closely to SpaceX. That is exactly why Terafab features so prominently in the merger discussions that both companies' special committees are now studying.
This article is for information only and is not financial advice.
