Intel joins Tesla's TeraFab chip project with SpaceX and xAI to meet growing demand for AI and robotics

Tesla's TeraFab project is a joint venture between Tesla, SpaceX, and xAI, dubbed by Elon Musk as "the most epic chip-building exercise in history." Tesla claims its $25 billion Austin chip factory would roughly match 70% of TSMC's current global output. This would allow Tesla to reduce its reliance on foundries like TSMC and Samsung by building domestic semiconductor production lines capable of producing chips at volumes significantly larger than those of any other foundry.

However, given that Tesla has no node IP or semiconductor industry experience, many were skeptical about how a car company, a rocket company, and an AI startup could develop 2nm-class process technology from scratch and scale it to 1 million. The most likely path forward was always a partnership with an existing foundry, and it appears Intel has now been chosen for that role.

Intel confirmed its involvement in the TeraFab project on its official X page, stating that it aims to help TeraFab reach 1 trillion watts of compute per year for future AI and robotics workloads.

Musk pitched TeraFab as a vertically integrated mega-facility that would combine design, lithography, fabrication, memory, advanced packaging, and testing under one roof. With Intel now in the picture, it is clear that the company will bring the process technology, manufacturing expertise, and advanced packaging capabilities needed to make such a facility viable.

For Tesla, partnering with Intel makes sense, as existing foundries haven't expanded fast enough to meet future demand for Tesla's AI hardware. Even the best-case supply scenarios from TSMC and Samsung were not enough to cover the AI5, AI6, and Optimus chips the company needs. The Optimus robot program is the largest single driver of chip demand, estimated to require 20 million chips per year. That is approximately six times Tesla's current chip demand across its entire automotive business.

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This leaves Intel as one of the few companies capable of operating at advanced process nodes while also offering industry-leading packaging technologies such as Foveros 3D stacking and EMIB. It also aligns with Musk's preference for a US-based supply chain, making Intel a natural partner alongside Samsung and TSMC.

Intel has not yet shared details about the process technology, packaging approach, or specific foundry model for TeraFab. However, the chipmaker's stock rose nearly 5% following the announcement of its partnership with Tesla, SpaceX, and xAI.