Tesla Plans Massive Chip Manufacturing Plant To Fuel AI Ambitions

Key Takeaways

Tesla CEO Elon Musk announced Thursday that the electric vehicle maker will likely need to construct what he called a "gigantic chip fab" to produce artificial intelligence chips for its autonomous driving and robotics programs, as current supplier capacity falls short of the company's growing needs.

Speaking at Tesla's annual shareholder meeting in Texas, Musk revealed that even optimistic production forecasts from the company's existing chip manufacturers, Taiwan Semiconductor Manufacturing Company and Samsung Electronics, would not meet Tesla's future requirements.

"Even when we extrapolate the best-case scenario for chip production from our suppliers, it's still not enough," Musk said. "So I think we may have to do a Tesla terafab. It's like giga but way bigger. I can't see any other way to get to the volume of chips that we're looking for. So I think we're probably going to have to build a gigantic chip fab. It's got to be done."

Potential Intel partnership on the table

In an unexpected development, Musk publicly mused about a possible collaboration with struggling U.S. chipmaker Intel, though he cautioned that no agreement has been reached.

"You know, maybe we'll, we'll do something with Intel," Musk told the cheering crowd of Tesla shareholders. "We haven't signed any deal, but it's probably worth having discussions with Intel."

Intel shares jumped 4% in after-hours trading following Musk's remarks. The U.S. government recently acquired a 10% stake in Intel, which has fallen behind competitors like Nvidia in the AI chip race and is seeking external customers for its newest manufacturing technology.

Massive production capacity planned

The proposed Tesla facility, which Musk dubbed a "terafab," would start with an initial capacity of approximately 100,000 wafer starts per month and could eventually scale up to one million wafer starts per month.

For context, TSMC's annual wafer production capacity reached roughly 17 million in 2024, translating to about 1.42 million wafer starts per month.

Tesla is currently developing its fifth-generation AI chip, known as AI5, specifically designed to power the company's autonomous driving systems.

According to Musk's Tuesday post on X, limited AI5 production will begin in 2026, with high-volume manufacturing slated for 2027.

The subsequent AI6 chip will use the same fabrication facilities but deliver approximately twice the performance, with volume production expected by mid-2028.

Musk emphasized that Tesla's custom chip would be significantly more efficient than competing products. The AI5 chip would consume roughly one-third of the power used by Nvidia's flagship Blackwell chip while costing just 10% as much to produce.

Ambitious timeline for autonomous vehicles

The chip manufacturing announcement comes as Tesla prepares to launch its Cybercab, an autonomous electric vehicle without pedals or a steering wheel. Musk confirmed Thursday that production of the fully autonomous vehicle will begin in April.

"I'm super hardcore on chips right now, as you may be able to tell," Musk said. "I have chips on the brain."

The move represents a significant strategic shift for Tesla, positioning the company to potentially become a major player in semiconductor manufacturing alongside its automotive and robotics operations.

While Tesla has designed its own chips for autonomous driving for several years, it has relied exclusively on external manufacturers for production.

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