Tesla and SpaceX Launch Terafab: A $25B Bet to Build AI Chips In-House

Elon Musk officially unveiled the Terafab project in Austin on March 21, a joint venture between Tesla, SpaceX, and xAI to build a vertically integrated semiconductor fabrication facility targeting 2nm process technology, with chips designed for autonomous vehicles, humanoid robots, and space-based AI infrastructure.

Elon Musk launched Terafab at the Seaholm Power Plant in Austin on March 21, a joint chip fabrication project between Tesla, SpaceX, and xAI, to be built and operated at the North Campus of Giga Texas. The project was first disclosed on Tesla’s January 28 earnings call, where Musk said the company needs its own fabrication capability to avoid a supply constraint within three to four years.

Terafab is designed as a vertically integrated facility covering logic processing, memory, advanced packaging, and testing, targeting 2 nanometre process technology. Musk’s stated output goal is one terawatt of computing power annually, requiring between 100 and 200 million chips per year.

Two chip categories are planned: one for edge and inference applications across Tesla vehicles, the Cybercab robotaxi, and Optimus robots; and a second high-power chip for space applications serving SpaceX and xAI. SpaceX completed its all-stock acquisition of xAI in February 2026, with xAI now a wholly owned subsidiary. Musk indicated xAI will consume the majority of Terafab’s output.

The estimated investment is $20 billion. Tesla’s CFO Vaibhav Taneja confirmed on the January earnings call that this cost is not included in the company’s 2026 capex plan, which already exceeds $20 billion. No ground-breaking date was announced. Musk confirmed Tesla will continue purchasing Nvidia chips in the interim.

The presentation also covered space-based AI infrastructure, including a miniaturised data center satellite with 100 kilowatts of power capacity, and SpaceX’s January FCC application to launch one million data centre satellites. SpaceX is targeting an IPO later in 2026 at an expected valuation of approximately $1.75 trillion.

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