Elon Musk has affirmed that both SpaceX and Tesla will continue to be significant clients of Taiwan Semiconductor Manufacturing Company (TSMC).However, he acknowledged that TSMC alone cannot meet the overwhelming chip demands of his companies. This shortfall has prompted the initiation of the Terafab project in collaboration with Intel.
Terafab: Key to Elon’s In-House Chip Production Ambitions, While SpaceX and Tesla Stay TSMC Customers
Recently, an announcement was made by Elon Musk and Intel’s CEO Lip-Bu Tan regarding their innovative Terafab initiative. This project aims to manufacture specialized chips for Tesla, SpaceX, xAI, and other Musk-led enterprises.
TSMC just can’t make the staggeringly large number of chips needed! If they could, we would not need to do this.
— Elon Musk (@elonmusk) April 18, 2026
The Terafab project is set to commence its pilot operations in 2029 with an initial output of 3, 000 wafers per month, gradually increasing as production techniques and yield rates enhance.
In the meantime, Tesla continues to rely heavily on TSMC and Samsung for its forthcoming AI technologies, including the innovative AI5 and AI6 chips. Recently, Musk shared images of the AI5 chip, recently taped out at Samsung’s facilities in South Korea. He also confirmed that plans for a Dojo3 supercomputer are in progress. Musk underscored the impending necessity for manufacturers to diversify their semiconductor sources as the demand for AI technologies escalates, which is a key motivation behind establishing an in-house fabrication facility like Terafab.
During a recent earnings call, TSMC’s Chairman and CEO, C. C.Wei, weighed in on the Terafab project, noting that while Tesla and Intel are valued clients, Intel remains a robust competitor. Wei emphasized that building a semiconductor fabrication plant is a complex undertaking, requiring 2–3 years for construction, plus an additional 1–2 years for ramping up to full production capability. This stance indicates TSMC’s confidence in its established market position, irrespective of potential competition from Terafab.
In response to Wei’s commentary, Musk clarified that SpaceX and Tesla will always remain priority customers for TSMC, not competitors in the traditional sense. He reiterated that the purpose of the Terafab project is to fulfill their specific needs rather than serve as a new avenue for fabless chip companies. This initiative aims to tackle the increasing limitations present in the semiconductor industry, which are anticipated to escalate rapidly in the future, creating a demand-challenged fabrication environment.
Musk pointed out that the necessity for the Terafab project would diminish if TSMC were capable of producing the “staggeringly”high volume of chips his companies require. This dialogue reflects the competitive yet cooperative relationship between the parties involved. TSMC remains a dominant force in the global semiconductor market, while Musk’s ventures—including Tesla, SpaceX, and xAI—continue to be essential clients for the foundry.
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