(Bloomberg) — Elon Musk’s lieutenants have reached out to chip industry suppliers including Applied Materials Inc., Tokyo Electron Ltd. and Lam Research Corp. for his envisioned Terafab, early steps in an audacious and likely arduous attempt to break into the production of cutting-edge chips.
Staff working for the joint venture between Tesla Inc. and SpaceX have sought price quotes and delivery times for an array of chipmaking gear, people familiar with the matter said. In past weeks, they’ve contacted makers of photomasks, substrates, etchers, depositors, cleaning devices, testers and other tools, according to the people, who asked not to be named disclosing private discussions.
The Terafab team also asked chip manufacturing partner Samsung Electronics Co. for support. The South Korean company instead proposed allocating more capacity for Tesla at its planned factory in Taylor, Texas, according to the people.
The outreach suggests Musk is pressing ahead with Terafab in the face of skepticism from the semiconductor industry. The project, as envisioned, aims to reshape the chipmaking landscape and propel the world’s richest person into an arena dominated by Taiwan Semiconductor Manufacturing Co. Intel Corp. said it will join the Terafab initiative, with its Chief Executive Officer Lip Bu Tan posting a photo of Musk on a recent visit to the chipmaker’s Santa Clara office.
Musk’s representatives have asked for speedy price estimates while providing minimal information about the products to be made. In one case, they asked a supplier on a holiday Friday for an estimate to be delivered the following Monday, one of the people said. Musk wants to move at “light speed,” the person was told.
Shares of Tokyo Electron closed up 5.3% in Tokyo on Thursday, while news of the talks also lifted the stock prices of chip gear makers such as Advantest Corp., Screen Holdings Co. and Disco Corp. Shares of Applied Materials and Lam Research rose more than 2% during pre-market trading.
The Terafab project — which has a mind-boggling goal to supply 1 terawatt of annual computing capacity — is the latest ambitious undertaking by Musk. While Tesla designs its own autopilot FSD chips, Musk’s companies have never manufactured semiconductors. Yet he’s now proposing to make them at a scale that would dwarf the world’s current capacity, starting with a pilot line in Austin that taps Tesla’s existing EV factory and infrastructure.
The idea is that the chips would be used to support Musk’s artificial intelligence business xAI, a line of humanoid robots and data centers in space — ambitions that many in the semiconductor industry don’t take seriously. The ultimate scale of the project, and whether it expands into a single mega site or multiple locations beyond Texas remains unclear.
The project is offering to pay a considerable amount above the quoted figures if suppliers give Terafab priority, according to the people. No fixed orders have been placed as it’s not clear what technology will be used or where the chips will be made, but the first step will be construction of a pilot line to process 3,000 wafers per month, the people said. The goal is to begin silicon manufacturing by 2029 and then scale up, one of the people said.
The project would require something like $5 trillion to $13 trillion in capital spending, according to estimates from Bernstein analysts. Applied Materials, Tokyo Electron, Lam Research and Samsung spokespeople declined to comment. Representatives for Tesla, SpaceX and xAI did not respond to requests for comment.
Musk — echoing similar concerns in corners of Silicon Valley — has said the semiconductor industry isn’t ramping up fast enough to produce the chips that AI companies will need. Amazon.com Inc., Alphabet Inc. and other hyperscalers expect to spend about $650 billion this year alone to build out data center infrastructure. That’s already creating a severe crunch in memory chips, and is beginning to spill over into AI accelerators.
Musk in March outlined plans for the massive operation to build cutting-edge semiconductors for artificial intelligence, robotics and space forays. In so doing, he would take on the best chip manufacturer in the world — TSMC. Such an endeavor will involve hundreds of steps that intersect multiple engineering fields, with collaboration from companies ranging from suppliers of industrial gases to testing equipment.
TSMC Chief Executive Officer C.C. Wei had a message for Musk during an earnings call. “It takes two to three years to build a new plant — no shortcut — and it takes another one or two years to ramp it up,” he said. “There are no shortcuts.”
Applied Materials, Tokyo Electron and Lam Research are critical players in the $1 trillion chip market, supplying the equipment that TSMC and its rivals require for complicated processes such as etching and deposition. ASML Holding NV is perhaps the most essential piece of the chip production supply chain: It’s the only company that can make extreme ultraviolet lithography machines, essential for any chipmaker that wants to fabricate the most sophisticated semiconductors at scale. It’s unclear whether Musk’s team has reached out to the Dutch company as well. ASML’s shares rose as much as 3.1% in Amsterdam.
Tesla board member Ira Ehrenpreis accompanied Musk on his visit to Intel’s headquarters earlier this month. In addition to the US chipmaker’s expertise, Musk has been recruiting people with knowledge of many different facets of chip plant operations, from chip design to power management, construction and procurement. In the manufacturing sphere, offers have been made to engineers at companies including Applied Materials, Samsung and TSMC, the people said.
Terafab aims to make AI chips for devices such as robotaxis and Optimus humanoid robots. It also seeks to manufacture high-power semiconductors for use in space by SpaceX and xAI. Musk said he expects xAI to use the vast majority of the components.
Some question whether Musk will ever be able to build anything like the Terafab project he sketched out in Austin, others say the billionaire has accomplished what appeared to be impossible, such as creating a commercially viable rocket business with SpaceX and bringing electric vehicles to the mainstream with Tesla.
Yet Musk may settle for more modest accomplishments in the chip industry, given the extreme costs and complexity. Hamburg-based Berenberg has yet to include Terafab into its financial models for ASML, whose High NA EUV equipment would likely be used in such an endeavor, Tammy Qiu, the bank’s head of tech equity research, said on Bloomberg Tech.
“The intention is real,” but it won’t be something happening in a significant way for another two years, she said. “We haven’t put Terafab in our numbers.”
–With assistance from Yoolim Lee, Debby Wu, Yuki Furukawa, Shinhye Kang and Tom Giles.
(Updates with stock moves and comment from TSMC CEO.)
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