Tesla's TeraFab: Elon Musk wants to beat Nvidia at its own game

Elon Musk has said that Tesla needs to build and run its own semiconductor plant, TeraFab. According to BloombergTech, the massive project will cost billions of dollars and mark another expansion for Tesla beyond its core business of making electric vehicles.

From third-party chips to its own fab

Tesla's history with chips is a steady march toward total control. The company started out using off-the-shelf Nvidia hardware for Autopilot, but those general-purpose chips didn't deliver the specialization Tesla needed. So Tesla designed its own FSD chips and outsourced their production to third-party foundries. Now Musk wants to own not just the designs but the lithography machines themselves. TeraFab is conceived as a vertically integrated operation capable of producing silicon at the volumes needed to train Dojo neural networks and run Optimus robots.

Why Tesla wants to break away from TSMC and Nvidia

Musk doesn't want to depend on TSMC's production schedules or Jensen Huang's priorities: the world has already seen entire industries grind to a halt during chip shortages. When a company builds supercomputers to train AI, it is either a customer or the one calling the shots, and TeraFab is meant to put Tesla in the second camp. In Musk's logic, if Tesla becomes the only company that can mass-produce chips, software, and robots under one roof, its market value will jump sharply. Construction is starting amid turbulence in the car market and growing competition from China.

Making chips is not building cars

Semiconductor manufacturing is one of the most complex and capital-intensive industries in the world: Intel has spent tens of billions of dollars for years trying to regain its lead, and not always successfully. Mastering nanometer-scale process nodes will be a serious challenge for Tesla's engineers and finance team. As Musk envisions it, TeraFab should free the company from relying on outside manufacturing capacity for AI and autonomous driving, and serve as insurance in case compute becomes more expensive than oil.

What is TeraFab?

TeraFab is Tesla's planned in-house semiconductor plant, which Elon Musk says the company needs to build. Construction will cost billions of dollars and mark another expansion for Tesla beyond its core automotive business.

Why is

Tesla moving from third-party chips to its own production?

Tesla originally used off-the-shelf Nvidia chips for Autopilot, then switched to its own FSD chips, which it designed in-house but had manufactured at third-party foundries. TeraFab is meant to give the company control over manufacturing itself, including the lithography machines, so it can produce silicon for Dojo neural networks and Optimus robots.

What does Tesla want to escape by moving away from TSMC?

Dependence on TSMC's production schedules and Jensen Huang's priorities when sourcing chips for AI training. Musk wants Tesla to be the one "calling the shots" rather than a customer of someone else's fabs.