SpaceX, Tesla Plan US$55 Billion Texas Terafab Chip Plant

SpaceX has submitted formal plans to construct a US$55 billion semiconductor manufacturing facility in rural Texas, marking a massive strategic shift toward vertical integration across Elon Musk’s aerospace and automotive ventures. The project, a joint venture with Tesla dubbed "Terafab," represents an initial commitment that could escalate to US$119 billion in total investment if all development phases are completed, according to public filings released Wednesday.

The proposed complex is slated for construction in Grimes County, near the Gibbons Creek Reservoir. Local officials have designated the site as a reinvestment zone and are scheduled to hold a public hearing on June 3 to consider a property tax abatement agreement for the project.

The Terafab initiative aims to establish a fully integrated manufacturing model that combines semiconductor fabrication with advanced computing infrastructure. According to documents reviewed by Reuters, the chips produced at the facility are intended to power Tesla’s autonomous driving programs, humanoid robotics development, and artificial intelligence data center infrastructure.

Elon Musk first introduced the Terafab concept in March, framing the facility as an existential necessity for his interconnected business ecosystem. "Either we build the Terafab or we do not have the chips, and we need the chips, so we build the Terafab," Musk stated, according to Bloomberg.

The strategic impetus behind the project is a clear effort to reduce reliance on external semiconductor suppliers, a list that currently includes industry leaders such as Samsung Electronics and Taiwan Semiconductor Manufacturing. (TSMC). By bringing production in-house, SpaceX and Tesla aim to mitigate supply chain risks and insulate their operations from geopolitical tensions that continue to affect global semiconductor markets, particularly those linked to US-China technology competition. 

During Tesla’s most recent quarterly earnings call, Musk provided technical specifics regarding the manufacturing pipeline, indicating that Intel’s 14A process would serve as the “backbone” for chip production at the Terafab, suggesting reliance on advanced foundry technologies despite the push for internalization.

Despite the ambitious scale of the project, SpaceX’s confidential S-1 registration statement—reviewed by Reuters—acknowledges significant operational risks. The filing reveals that SpaceX intends to manufacture its own Graphics Processing Units (GPUs) and anticipates “substantial capital expenditures” to support the effort. However, the document also notes that SpaceX currently lacks long-term agreements with most of its chip suppliers, leaving it heavily reliant on third parties in the interim.

Furthermore, the S-1 warns investors that “there is no assurance” the company will meet its Terafab objectives within the projected timelines, or at all.

The timing of the Terafab proposal coincides with SpaceX’s preparations for an initial public offering (IPO) targeted for late June. Analysts suggest the IPO could value the company at approximately US$1.75 trillion. This valuation follows the internal merger between SpaceX and xAI, Musk’s artificial intelligence startup, earlier this year. That deal integrated SpaceX’s launch operations and Starlink broadband network with the social media platform X and the AI chatbot Grok.

Financial data included in the reports highlight the cost of this aggressive expansion. SpaceX reported a loss of US$4.94 billion on US$18.67 billion in revenue last year. This represents a significant reversal from 2024, when the company recorded a profit of US$791 million on US$14.02 billion in revenue. The shift into a deficit is attributed to heavy infrastructure spending on AI and semiconductor capabilities following the xAI merger.

If approved, the Terafab would align with broader US federal efforts to expand domestic semiconductor manufacturing and secure end-to-end computing capability within North America, in line with industrial policy initiatives such as supply chain reshoring and technological sovereignty. Representatives for SpaceX did not respond to requests for additional comment.