Dan Ives: Tesla will become 'AI powerhouse' with new chip factory
Back in November, Elon Musk said during his keynote speech at Tesla's (TSLA) annual shareholder meeting that the only way to keep up with the demand his companies have for chips might be to build their own semiconductor manufacturing facility.
Tesla has been relying on partners like Taiwan Semiconductor Manufacturing Limited (TSMC) and Samsung for chip production, but Musk had his sights set on something bigger.
“Even when we extrapolate the best-case scenario for chip production from our suppliers, it is still not enough,” Musk said.
He suggested that the company would build a Tesla Terafab, which he noted would be similar to TSMC's Gigafab, "but way bigger."
"I cannot see any other way to get to the volume of chips that we are looking for, so I think we are probably going to have to build a gigantic chip fab," Musk said. "It’s gotta be done."
To put this into context: TSMC's Megafabs have a production capacity of 30,000 to 100,000 wafer starts per month (WSPM), while a facility that produces more than 100,000 WSPM is called a Gigafab.
A Terafab would then be producing something considerably higher than 100,000 WSPM.
Over the weekend, Musk officially announced during a livestream event posted on X that Tesla and SpaceX would in fact be building a Terafab semiconductor facility as a joint venture on the Tesla campus in Austin, Texas.
Musk noted that the Terafab would make chips that will be used in Tesla's vehicles and its Optimus humanoid robots. It would also manufacture chips to be used in space as SpaceX plans a massive deployment of satellites that can be utilized for AI computing tasks.
"We either build the Terafab or we don't have the chips," Musk said at the event over the weekend. "We need the chips, so we're going to build the Terafab."
Musk faces a 'Herculean task'
Given Musk's history of making bold promises that have yet to pan out, there is some skepticism about his ability to deliver on this latest gambit. Consider that if he pulls this off, it would make Tesla one of the largest chipmakers in the world.
Morgan Stanley analysts estimate that the Terafab will cost about $20 billion to build.
“Even understanding Elon Musk’s history of doing difficult things, this seems like a Herculean task,” they wrote in a client note this week.
Nvidia founder and CEO Jensen Huang appeared to cast doubt on Tesla's plans during a TSMC event in November shortly after Musk first suggested the company might seek to build a Terafab.
“Building advanced chip manufacturing is extremely hard,” Huang said. “It is not just build the plant, but the engineering, the science, and the artistry of doing what TSMC does for a living is extremely hard.”
But Wedbush analyst Dan Ives, who is not only one of the industry's most prominent tech analysts, but also a longtime Tesla bull, has more confidence than some of his peers in Musk's ability to deliver on this latest bold plan.
"While the timeline for this project is uncertain, this will accelerate the company's ambitious AI path which we believe will set the foundation for TSLA to become an AI powerhouse over the coming years with chip and memory supply expected to be the greatest constraint," Ives said in a client note on Tuesday.
Ives added that Wedbush sees the planned joint venture as "the first step to ultimately what will be Tesla and SpaceX combining forces in a merger likely in 2027."
Bloomberg reported that Tesla has "discussed the feasibility of a tie-up between SpaceX and Tesla, an idea that some investors are pushing."
Gary Black, managing partner of The Future Fund and a frequent Musk critic, recently warned that a potential merger between Tesla and SpaceX could erase $750 billion in value from Tesla shareholders.