Tesla and SpaceX Launch $25 Billion ‘Terafab’ Chip Factory

Tesla and SpaceX have announced a joint venture, ‘Terafab,’ a $25 billion chip fabrication facility in Austin, Texas, aiming to produce 1 terawatt of computing power annually. The project, unveiled on March 21, 2026, by Elon Musk, is designed to consolidate every stage of semiconductor production under one roof, from chip design to testing.

A Vertically Integrated Approach to Chip Manufacturing

Terafab represents a significant and ambitious undertaking, aiming to create a fully vertically integrated semiconductor operation. This includes chip design, lithography, fabrication, memory production, advanced packaging and testing – all within a single facility located on the North Campus of Giga Texas [1]. The facility is a joint effort between Tesla, SpaceX, and xAI, the AI company recently acquired by SpaceX [1].

Targeting Advanced 2-Nanometer Technology

Tesla is targeting 2-nanometer process technology with Terafab, a leading-edge node currently being ramped up by TSMC [1]. Musk described the project as “the most epic chip building exercise in history by far” [1].

Production Scale and Output

Terafab is initially planned for 100,000 wafer starts per month, with ambitions to scale to 1 million wafer starts per month at full capacity [1]. At full scale, this would represent approximately 70% of TSMC’s entire current global output [1]. The facility is expected to produce between 100 and 200 billion custom AI and memory chips annually [1].

Addressing Supply Chain Concerns

The impetus for Terafab stems from concerns about the limitations of external chip suppliers. Elon Musk has indicated that the growth pace of companies like TSMC, Samsung, and Micron is insufficient to meet Tesla and SpaceX’s future needs [2]. Building in-house chip production was framed as a necessity rather than a strategic choice [2].

Applications for Terafab’s Output

The chips produced at Terafab will power Tesla’s “Full Self-Driving” software, the Cybercab robotaxi program, the Optimus humanoid robot line, and SpaceX’s orbital satellite constellation [1], [2]. The computing power will be split between Tesla’s AI5 inference chips and D3 chips built for SpaceXAI [2].

Terafab’s Broader Vision

Elon Musk envisions Terafab as a pivotal step toward enabling massive-scale AI infrastructure and, toward humanity becoming a “galactic civilization” [3]. The announcement was accompanied by a SpaceX broadcast and conceptual imagery of prototype 100 kW miniature satellites [3].