How Elon Musk's Texas Terafab will Make AI Chips

Elon Musk, CEO of Tesla, xAI and SpaceX, earlier this year announced plans to build two large specialised semiconductor fabrication facilities (fabs).

He has announced new details including a partnership with Intel for this Terafab venture, a collaboration between all three companies which all require advanced AI chips. 

In Tesla’s Q1 earnings call, Elon Musk said: “Intel is excited to partner with us on some of the core manufacturing technologies.”

Partnership with Intel

On the 7th April, 2026 Intel announced in a post on X that it is “proud to join the Terafab project” with SpaceX, xAI and Tesla “to help refactor silicon fab technology”.

Intel said: “Our ability to design, fabricate and package ultra-high-performance chips at scale will help accelerate Terafab’s aim to produce 1 TW/year of compute to power future advances in AI and robotics.”

Elon said in Tesla’s Q1 Earnings call: “We plan to use Intel's 14A process, which is state-of-the-art and, in fact, not yet totally complete.”

Elon added: “Given that by the time Terafab scales up, 14A will be probably fairly mature or ready for prime time.”

According to the Financial Times, Intel, headed up by CEO Lip-Bu Tan, has struggled to land external customers for its manufacturing business, with its 14A technology still being tested by tech clients. Intel conducted mass layoffs in 2025 as a way of managing financial losses.

Intel's fourth-quarter revenue was US$13.7bn in 2025, down 4% year-over-year. The company's stock has risen dramatically in Q1 of 2026.

Semiconductor fabrication

McKinsey says that globally, semiconductor companies plan to invest about US$1tn through 2030 in new fabs.

Building a new fab in the United States is significantly more expensive than building a fab in Asia, McKinsey says. A key reason for this is the cost of labour needed in construction of the manufacturing facilities. 

Elon explained: “We're still working out the details of the Terafab deployment.

"In the near term, Tesla will be building the research fab on our Giga Texas campus. This is something we expect to be probably a US$3bn-ish initiative.”

Elon added it would be “capable of maybe a few thousand wafers per month”.

He plans to consolidate every stage of semiconductor production at the Texas facilities. 

Vaibhav Taneja, CFO of Tesla, said in the earnings call: “The other thing on the research fab, I think we've said it before, we plan to do memory, logic, everything in the same place, including mask, because we want to have a quick iteration loop so that we can see and basically scale the technologies which we are trying to bring up.”

Semiconductor supply chain issues

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.

When announcing the Terafab, Elon said that demand from his companies alone outweighed global supply.

He explained: “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.”