Equipment and Manufacturing Processes TSMC is in Talks with Musk Regarding its Manufacturing Role at Terafab

Related Vendors

FAULHABER Drive Systems

Taiwan Machine Tool & Accessory Builders' Association (TMBA)

SIMTOS (Seoul International Machine Tool Show)

A Reality Check for Elon Musk: The CEO of SpaceX had announced plans to build a complete in-house chip production chain from the ground up within a few years as part of his Terafab project. Now, however, Musk himself has confirmed that he has begun negotiations with TSMC. The focus is on manufacturing processes, operational expertise, and the question of who would ultimately control the potential new fab.

TSMC and the companies behind the Terafab project are in talks about a potential partnership to build semiconductor capacity in Texas. CEO Elon Musik has since confirmed this himself in a short message on his messaging platform X (formerly Twitter). He emphasized, however, that no agreement has been reached yet.

Various models are being discussed, ranging from a factory operated by TSMC to a joint venture under greater control by SpaceX or Terafab. Intel had already announced its support for the project in April, without disclosing the specific details of its role.

Terafab is intended to go far beyond a conventional chip factory. The project aims to consolidate key stages of semiconductor production at a single location. These include the manufacturing of logic chips and possibly memory chips, the production of masks, as well as packaging and testing. The chips are intended for use in Tesla vehicles, Optimus robots, SpaceX, and xAI’s data centers, among other applications. Investments of approximately $16.8 billion have been cited for the first phase of expansion; in the long term, expenditures could be considerably higher across multiple project phases.

A Modern Factory Consists of More than just Machines

It is precisely this planned vertical integration that makes Terafab technically challenging. Setting up a modern manufacturing process involves more than just building cleanrooms and installing lithography, etching, or coating equipment. Thousands of individual process steps must be coordinated in such a way that transistors with reproducible characteristics are produced and the yield is economically viable. Process recipes, material control, measurement technology, failure analysis, and the ongoing optimization of yield are all part of the knowledge that leading manufacturers have built up over decades.

Added to this is the supply chain for manufacturing technology. Modern processes require, among other things, lithography systems from ASML as well as equipment from Lam Research, KLA, Tokyo Electron, and other specialists. Long lead times can apply, especially for machines in high demand. Even when sufficient capital is available, equipment must be procured, installed, qualified, and then commissioned as an integrated production line. Chemicals, wafers, gases, spare parts, and measurement technology must also be integrated into production.

This is precisely where one of the biggest hurdles for Musk’s companies lies. While Tesla, SpaceX, and xAI have extensive experience in developing their own electronics and specialized chips, they have not yet gained comparable experience in operating state-of-the-art semiconductor factories or in manufacturing processes. The expertise required for competitive manufacturing can therefore hardly be built up internally in the short term. Intel could close part of this gap with its 14A technology, while Samsung has already received a separate order to manufacture Tesla’s AI6 chips. TSMC’s involvement would also bring the expertise of the world’s largest contract manufacturer to the project.

TSMC Could Become an Operator Rather Than a Technology Supplier

One possible option is a model in which TSMC owns and operates a new factory itself. SpaceX or Terafab could provide financial backing, commit to fixed purchase volumes, or combine both approaches. Such a structure would at least partially resemble TSMC’s existing joint ventures in Japan and Europe: partners contribute capital and guarantee demand, while TSMC remains responsible for manufacturing processes and operations. For Musk, this would make it possible to secure his own, long-term reserved capacity without his companies having to manage a full-scale manufacturing operation themselves at first.

Another option would be a factory controlled primarily by SpaceX or Terafab, to which TSMC would contribute process expertise and operational experience. For TSMC, this model would be significantly less common. The company’s business model is based on using its own manufacturing technologies in fabs it controls for a wide range of customers. An arrangement in which a single customer controls the facility while also gaining access to core manufacturing know-how could therefore raise questions about the protection of process technology and neutrality toward other major customers. The option of building a separate TSMC expansion facility in Texas and integrating Musk’s company there as a major or anchor customer is therefore considered less likely to cause conflict.

It also remains unclear what manufacturing technology would be used in such a facility. Intel was originally its 14A process for Terafab. If TSMC were to operate a factory on its own, however, the company would likely use its own processes, which would require a redefinition of Intel’s role. Following news of the talks between Musk and TSMC, Intel’s stock price immediately dropped by 4%. Packaging could also offer a separate avenue for collaboration.

Comment

Intel And Tesla Partner With Terafab. But How?

Discussions are still in the early stages, and—like virtually everything else related to the announced Terafab project—remain vague and unclear. But it seems that even Musk himself is now slowly realizing that the scale of the Terafab project cannot be managed through heavy investment alone: What matters most are proven processes, high yields, experienced operations teams, and a supply chain capable of reliably supporting complex chip manufacturing over many years.

This development brings to mind a statement made by C. C. Weis during the company’s annual shareholders’ meeting in early June 2026. In response to a shareholder’s question about Elon Musk’s plans to build a factory capable of producing one million wafers per month, the TSMC CEO replied: “As for Elon Musk’s ‘Terafab,’ I’d just say, ‘Good luck.’ It’s going to take quite a long time for that to [become a reality].” He added: “Over the past 30 to 40 years, we’ve constantly faced all kinds of competition, and we’re not afraid of competition. In the past, I believe we’ve come out on top, and I believe we’ll continue to do so.”

/Update: Oct. 7: Intel CEO Lip-Bu Tan confirmed to reporters that Intel will continue to hold a stake in Terafab. These developments suggest that Musk has not yet committed to a single manufacturing partner for Terafab, with both Intel and TSMC potentially playing a role. According to Trendforce, the project is expected to involve much closer manufacturing collaboration than a traditional customer-supplier relationship. The Korean business newspaper “Seoul Economic Daily” also quoted analysts who view Musk’s mention of TSMC as a negotiating tactic. The goal, they say, is to gain bargaining power over Intel with regard to pricing. Luke Lloyd, CEO of Equity Armor Investments, pointed to the U.S. government’s investments in Intel and argued that it is hard to imagine the chipmaker being replaced on a significant scale.

Catch-up race

Musk's SpaceX Buys AI Experts Cursor for Billions