SpaceX, Tesla to Initially Spend $16.8 Billion on Terafab AI Chip Plant in Texas

Elon Musk's SpaceX and Tesla will initially invest $16.8 billion to build Terafab, an advanced AI semiconductor complex in Grimes County, Texas, as the companies race to secure chip capacity that the billionaire has described as essential to their future operations. The facility is designed to narrow the widening gap between global chip supply and the more than 1 terawatt of computing power that SpaceX and Tesla anticipate needing in the coming years.

According to a statement posted on SpaceX's website on Thursday, the initial phase of the project will employ at least 3,000 people, with future expansion phases potentially pushing total investment significantly higher. The vertically integrated plant, spanning 100 million square feet, will handle the manufacturing, packaging, and testing of advanced logic and memory chips under one roof, producing processors needed to power Tesla's Optimus robots and Cybercabs, as well as high-power chips to run SpaceX's space-based data centers.

"The Terafab is bringing cutting-edge manufacturing to America, creating thousands of high-paying jobs in the Lone Star State, and enabling us to produce AI chips at scale for use on Earth and in space," Musk said in the statement. The project marks a further tightening of AI integration across Musk's companies, following SpaceX's acquisition of his startup xAI earlier this year in a deal focused on building space-based data centers, and the subsequent public listing of SpaceX in June, which was the largest-ever IPO.

A May filing revealed that SpaceX had initially proposed an investment of $55 billion for the Terafab, with the total amount rising to $119 billion if additional phases are completed. To support these efforts, SpaceX partnered with Intel earlier this year, as the chipmaker seeks to expand its contract manufacturing business as part of a broader turnaround strategy. Tesla also broke ground in April on a research facility at the North Campus of its Giga Texas plant, which is considered a precursor to the Terafab.

The Grimes County site is located near the Gibbons Creek Reservoir, whose water the companies plan to use for industrial operations rather than relying on local groundwater. The development adds to SpaceX and Tesla's growing Texas footprint, alongside existing sites at Starbase, Bastrop, and McGregor. "Texas is where big ideas grow even bigger," the state's governor, Greg Abbott, said in a statement.

Industry analysts view the Terafab as a critical step in Musk's broader strategy to secure an independent and scalable chip supply for his ventures, particularly as demand for AI-driven computing power surges across both terrestrial and space-based applications. The project also underscores a broader trend among major technology companies to vertically integrate semiconductor production, reducing reliance on external suppliers amid ongoing global supply chain constraints.