Why is Elon Musk Building Advanced AI Chip Factories?
Elon Musk, CEO of Tesla, xAI and SpaceX, has announced plans to build two large specialised semiconductor fabrication facilities (fabs).
The announcement comes under the bracket of his venture Terafab, announced earlier this month as a collaboration between xAI, Tesla and SpaceX – all of which require advanced AI chips.
In a post on X, Elon said: “Terafab will technically be two fabs, each making only one chip design. This greatly simplifies process flow and allows more linear, adjacent movement of the FOUP.”
Texas manufactured AI chips
Announcing Terafab at the launch in Texas, Elon explained: “We are starting off with an Advanced Technology Fab, here in Austin.
“In the Advanced Technology Fab we will have all of the equipment necessary to make a chip of any kind.”
The proposed sites will deal with all elements of the production of chips all in-house. They are set to produce chips for Tesla vehicles, humanoid robots and space hardened chips for AI satellites.
Elon continued: "To the best of my knowledge this doesn’t exist anywhere else in the world."
Elon suggested at the event in Texas that demand for chips from his company’s would far exceed the current output of semiconductor manufacturers.
Manufacturing in the US
US President Donald Trump has incentivised and threatened to penalise companies who offshore manufacturing in a bid to boost US manufacturing.
Apple is among many of the world's biggest tech companies who have moved some elements of production to the US as a result of these developments.
Elon announced that facilities for producing AI chips will be built in Texas, where he already has sites for his company's xAI and Tesla.
Semiconductor supply chain issues
Speaking at the announcement in Austin, Elon added: “This announcement is about solving the key missing ingredient.
“To give you a sense of what we are talking about, the current output of AI compute is roughly twenty gigawatts per year. This chart explains why we need to build the Terafab because all of the rest of the output from earth is about 2% of what we need.
“We certainly want our existing supply chain to be clear. We are very grateful to our existing supply chain. To Samsung, TSMC, Micron and others. And we would like them to expand as quickly as they can.
“And we will buy all of their chips. I have said these exact words to them. But there’s a maximum rate at which they're comfortable expanding. But that rate is much less than we would like.”
AI chip manufacturing
According to McKinsey, the value of the semiconductor market totalled US$775bn in 2024 and could reach US$1.6tn (ranging from US$1.5tn to US$1.8tn) by 2030.
Semiconductor manufacturers are struck by combined impacts of continually shifting geopolitical issues, material and talent shortages, supply chain disruptions and a juggernaut of technological advances.
According to Morningstar, the critical mineral supply chain risks come as chipmakers face soaring demand for semiconductors amid the AI buildout, with data centre demands already sparking shortages for other products such as laptops and cars.
