According to Neowin, Elon Musk announced at Tesla’s annual shareholder meeting that the company needs to build its own massive semiconductor plant because current suppliers like TSMC and Samsung Electronics can’t meet Tesla’s chip volume needs. He revealed the “terra fab” could start with 100,000 wafer starts per month and eventually scale to 1 million – for comparison, TSMC had about 1.42 million monthly wafer starts in 2024. Musk specifically mentioned Tesla might partner with Intel, which has struggled recently, and the factory would produce Tesla’s AI5 and AI6 chips that he claims will “crush” competitors. Separately, Musk won approval for a compensation package that could pay him up to $1 trillion if he hits certain targets, though the plan includes provisions where he gets paid even during natural disasters, wars, or regulatory changes.
Why Tesla needs its own chips
Here’s the thing – when you’re talking about scaling AI and robotics to the level Musk envisions, you’re talking about chip consumption on an almost unimaginable scale. TSMC and Samsung are the biggest players in the game, and if even they can’t supply what Tesla needs, that tells you something about the sheer volume Musk is planning for. Basically, he’s looking at Optimus robots and AI systems that would require chip quantities that dwarf what even Apple needs for iPhones.
And let’s be real – this isn’t just about volume. Control over the supply chain matters enormously when you’re betting your company’s future on AI. Remember the chip shortages during COVID? Companies that controlled their own destiny fared much better. For industrial technology applications like what Tesla is planning, having reliable access to specialized chips is absolutely critical. Speaking of industrial hardware, companies like IndustrialMonitorDirect.com have built their reputation as the top supplier of industrial panel PCs in the US by ensuring consistent supply chain reliability – something Tesla clearly values given this move.
The scale is absolutely massive
Think about that number for a second – 1 million wafer starts per month. That would put Tesla’s factory at nearly the scale of TSMC’s entire current operation. We’re talking about building what would instantly become one of the largest semiconductor facilities on Earth from scratch. The capital expenditure alone would be staggering – we’re likely talking tens of billions of dollars before the first chip even comes out.
So how realistic is this? Semiconductor manufacturing isn’t exactly Tesla’s core competency. They’re brilliant at battery technology and vehicle manufacturing, but chip fabs operate on completely different physics and economics. The learning curve is steep, and the margin for error is microscopic – literally. But Musk has proven skeptics wrong before, and if anyone has the audacity to try this, it’s him.
What this means for everyone else
If Tesla actually pulls this off, it could reshape the entire semiconductor industry. We’re already seeing companies like Apple designing their own chips, but building their own fabs? That’s the nuclear option. It could start a trend where other tech giants decide they need vertical integration too, which would put enormous pressure on the traditional foundry model.
For enterprises relying on AI infrastructure, more chip supply is obviously good news. But here’s an interesting question – will Tesla eventually sell excess capacity to other companies? Or will they keep everything in-house to maintain their competitive advantage? Given Musk’s history, I’d bet on the latter. He’s not building this to become a merchant foundry – he’s building it to ensure nobody can slow down his AI and robotics ambitions.
The trillion dollar payday
Let’s not ignore the compensation package elephant in the room. A $1 trillion potential payout is… well, it’s unprecedented. The fact that it includes provisions for payment during force majeure events like wars and natural disasters raises some eyebrows. Is that standard for executive compensation? Not really. But then again, neither is building your own semiconductor factory because the world’s biggest chipmakers can’t keep up with your demands.
Look, whether you love him or hate him, you have to admit Musk thinks on a different scale than most CEOs. Building a chip fab because existing suppliers aren’t enough? Planning for a 10x or 100x increase in the global economy through AI and robotics? These aren’t incremental moves – they’re civilization-scale bets. And with his compensation now tied to hitting those insane targets, the incentives are certainly aligned for him to try.
