AUSTIN, TEXAS – Tesla and SpaceX jointly announced a $25 billion chip fabrication facility, dubbed “Terafab,” in Austin, Texas, on March 21, 2026. Elon Musk, CEO of both companies, characterized the project as “the most epic chip building exercise in history by far,” promising an annual computing output of 1 terawatt.
The Terafab venture includes Tesla, SpaceX, and xAI, the artificial intelligence company recently acquired by SpaceX in an all-stock deal. The facility will be located on the North Campus of Giga Texas and is designed to encompass the entire semiconductor production process, from chip design and lithography to fabrication, memory production, advanced packaging, and testing.
Tesla is targeting a 2-nanometer process technology for Terafab, a leading-edge node currently being introduced into commercial production by Taiwan Semiconductor Manufacturing Company (TSMC). Musk stated that the facility aims for an initial output of 100,000 wafer starts per month, with a long-term goal of scaling to 1 million wafer starts per month. This full capacity would represent approximately 70% of TSMC’s current global output, according to the announcement.
The chips produced at Terafab will be divided into two primary categories: inference chips for Tesla vehicles and the Optimus humanoid robots, and D3 chips specifically designed for orbital AI satellites. Tesla anticipates little-batch production of the AI5 chip in 2026, with volume production projected for 2027. The AI6 chip, however, has experienced a six-month delay due to setbacks in Samsung’s 2nm production schedule, according to Musk.
A significant portion of Terafab’s computing power – 80% – will be dedicated to space-based orbital AI satellites, with the remaining 20% allocated to ground-based applications. Musk argued that the higher solar irradiance in space, combined with efficient heat rejection in a vacuum, could craft orbital AI compute cheaper than terrestrial alternatives within two to three years. He stated, “We’re starting a galactic civilization.”
Tesla’s Chief Financial Officer acknowledged that the $20-25 billion cost of Terafab is not currently included in the company’s capital expenditure plan for 2026, which already exceeds $20 billion.
The announcement follows a period of declining auto sales for Tesla. Sales decreased for the second consecutive year in 2025, with significant challenges in Europe and an overall annual decline in China. SpaceX, in contrast, is preparing for an initial public offering with a potential valuation of $1.5-1.75 trillion, according to reports. Musk indicated that the Terafab announcement is intended to align Tesla, a company experiencing business challenges, with SpaceX, a company poised for a public offering, and to capitalize on the growing interest in AI hyperscalers.
Elon Musk served as a Senior Advisor to President Donald Trump from January 20, 2025, to May 28, 2025, before departing from the Department of Government Efficiency, according to records.
