(Jan 29): Elon Musk said Tesla Inc needs to build and operate what he is calling a “TeraFab” to manufacture semiconductors, a massive undertaking that will cost billions of dollars and mark another expansion beyond what had been the company’s core electric vehicle business.
“In order to remove the probable constraint in three or four years, we are going to have to build a Tesla TeraFab,” Musk said Wednesday on the carmaker’s earnings call. “A very big fab that includes logic, memory and packaging, domestically.”
Tesla, the world’s most valuable automaker, has bet its future on artificial intelligence (AI), autonomous driving and robotics, projects with an insatiable need for chips that the Austin-based company currently sources from Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co.
Musk said that existing suppliers, naming TSMC, Samsung and Micron Technology Inc, are not able to supply Tesla at the levels the company needs.
“That’s going to be very important to ensure we are protected against geopolitical risks,” Musk said. “I think people maybe are underweighting some of the geopolitical risks that are going to be a major factor in a few years.”
The world is very dependent on Taiwan’s TSMC and its own domestic production capacity for supply of cutting-edge chips.
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In recent weeks, the world’s richest person has signalled that Tesla might produce chips itself to address a limited supply that he sees as the main bottleneck in the highly competitive AI race.
“We’re going to hit a chip wall if we don’t do the fab,” Musk said, referring to the industry term for a chip factory, in a recent podcast with Peter Diamandis, founder of the X Prize Foundation. “We’ve got two choices: hit the chip wall or make a fab.”
In November, Musk similarly told Tesla shareholders the company may need to build a “TeraFab,” saying “I can’t see any other way to get to the volume of chips that, that we’re looking for.”
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The economics of chipmaking are brutal. Building cutting-edge factories takes tens of billions of dollars in fixed costs and time to bring them online and make fully operational.
It also requires the purchase of complex machines from multiple providers, especially Europe’s ASML Holding NV, which dominates the market for a critical part of the fabrication process.
Although daunting, building a chip factory would follow Musk’s track record of vertical integration. Bringing key components in-house allows his empire of companies to move far faster than their supply chains. Tesla, SpaceX, xAI, Neuralink and the Boring Company also increasingly overlap.
It’s unclear where in the US the factory would be built, and on what timeline.
Tesla expects to spend more than US$20 billion in capex this year on its existing factories. How “infrastructure plays” like a solar cell manufacturing facility and the chip fab will be funded remain to be seen.
“We have over US$44 billion of cash and investments on the books,” chief financial officer Vaibhav Taneja said. “So we’ll use our internal resources, but there are ways where we can fund it.”
He added that “any time you have a consistent stream of cash flow, you can go and get money from the banks.”
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“And we have had conversations with banks about it,” Taneja said. “We will have to look at a little bit more in terms of how we fund it, whether it’s through more debt or other means.”
Musk said that Tesla will have a “bigger announcement” about TeraFab in the future.
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