Analyst Claims Elon Musk’s Chip Fab Plans Focus on Larger Mission, Not TSMC Competition

Elon Musk’s recent initiative to establish Tesla’s own semiconductor manufacturing capabilities signifies a strategic move that extends beyond merely ensuring chip availability. This ambitious plan, aptly named ‘TeraFab’, aims to create a foundation that buffers against potential supply chain disruptions.

Elon Musk’s Chip Fabrication Initiative: Addressing Geopolitical Risks in Taiwan

At a recent Tesla shareholder meeting, Musk revealed the company’s intentions to build its chip fabrication facilities to cater to the growing demands for specialized silicon, including the AI5 and AI6 chips. This decision comes in response to findings that major semiconductor manufacturers, TSMC and Samsung, have dedicated portions of their production lines to Tesla’s custom chips. Nevertheless, they still fall short of meeting the automaker’s ambitious requirements.

@elonmusk 在Tesla最新的股東會發言，驗證了我先前對馬斯克 (Musk) 在半導體佈局的分析與預測，以下簡短分析為何Musk希望Tesla能蓋自己的晶片生產工廠1. Musk指出「So I’m hopeful that we can within less than a year of AI5 starting production, we can actually transition in the same fab to… https://t.co/QgICiGoWX0 pic.twitter.com/QDVY95zL74

— Ming-Chi Kuo (@mingchikuo) November 9, 2025

Prominent analyst Ming-Chi Kuo has highlighted one critical aspect of Musk’s strategy: a wariness regarding the concentration of semiconductor production in Taiwan. Given the geopolitical tensions and uncertainties surrounding the region, Tesla seeks to ensure a reliable and consistent chip supply by establishing domestic production facilities. Although TSMC has sought to shift some manufacturing capacity to the U. S., experts anticipate that achieving meaningful results from this transition could take several years.

Rapidus semiconductor facility in Japan aiming for 2nm chip mass production by 2027 amid competition from TSMC and Samsung — Image Credits: TSMC

It’s crucial to note that TSMC has historically prioritized its customer needs, irrespective of order size. However, Tesla’s position in the queue for chip production is affected by its competing demands against established giants such as Apple, NVIDIA, MediaTek, and Qualcomm. This results in reduced R&D support and production flexibility for Tesla. In contrast, by developing its own chip facilities, the company would gain enhanced control over its silicon design and manufacturing processes.

The complexity of developing a robust semiconductor supply chain, particularly for internal use, cannot be understated. Despite massive investments, companies like Intel continue to encounter hurdles in actualizing their ambitions. Elon Musk, known for his propensity to tackle ambitious projects, may very well succeed in making significant advances in the semiconductor space. Thus, evaluating Tesla’s chip initiatives solely based on the CEO’s remarks could lead to an underestimation of their potential impact.