Musk Confirms Tesla’s $16.5 Billion Deal with Samsung for Chips, Calls It the “Bare Minimum”

Please note, this article does not constitute investment advice. The author does not hold any positions in the stocks discussed.

Elon Musk to Supervise Samsung Chip Production for Tesla’s AI Chips

Tesla’s CEO, Elon Musk, has announced a strategic partnership with Samsung, which will entail the use of Samsung’s chip manufacturing facility in Taylor, Texas, for the production of Tesla’s upcoming AI chips, known as the AI6. Musk has expressed his intention to be directly involved in the manufacturing process to ensure optimal efficiency.

In a related development, Taiwan Semiconductor Manufacturing Company (TSMC), acknowledged as the leading contract chipmaker globally, will oversee the production of the AI5 chips initially at its facilities in Taiwan and later at its Arizona plant. This collaborative effort is poised to enhance Tesla’s technological capabilities.

Significance of the Samsung Partnership

This agreement marks a significant milestone for Samsung’s foundry division, which has struggled to keep pace with TSMC in recent years. The deal, valued at approximately $16.5 billion, has already resulted in a 2.5% increase in Samsung’s stock price following the announcement according to Bloomberg reports.

Elon Musk confirmed the arrangement via X, suggesting that the financial implications might far exceed the reported figure, indicating that Samsung’s manufacturing output could reach significantly higher levels than the initial estimates.

AI Chip Development and Future Outlook

The chips currently integrated into Tesla vehicles are the AI3 models, while the AI5 series is expected to represent a substantial upgrade. There are concerns surrounding potential US export controls on these advanced chips, and during Tesla’s recent earnings call, Musk projected that production of the AI5 chips should start by the end of next year.

Red electric car on countryside road at sunset.

The subject of hardware upgrades has been a point of contention for Tesla. As earlier models equipped with older chips have struggled to support the updates for the full self-driving (FSD) system, there is great anticipation for the forthcoming A15 chips, which Musk confirmed will be produced by TSMC as well.

In line with this strategy, TSMC will initially fabricate the A15 chips in Taiwan before transitioning to Arizona. Musk indicated that the design phase for these chips has recently concluded, while Samsung is tasked with producing the AI4 processors. Notably, TSMC’s Arizona facility is its most advanced site, utilizing the N4 process technology.

The Future of Tesla’s AI Capabilities

The AI5 chip is rumored to utilize cutting-edge 3-nanometer process technology, with speculative reports indicating that its computational power may reach up to 2, 500 trillion operations per second.

Furthering Tesla’s ambitious plans, Musk revealed that Samsung will also be responsible for the next-generation A16 chips. He emphasized the strategic importance of the partnership, noting that Samsung had agreed to allow Tesla to contribute to manufacturing efficiency. Musk’s personal involvement is slated to enhance production timelines significantly, emphasizing the proximity of the Samsung plant to his Texas residence. This location aligns seamlessly with Musk’s operational hub, given its closeness to SpaceX’s Boca Chica facility, where the company is advancing its Starship project for future space exploration.

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