Barclays: TeraFab Chip Factory Could Significantly Boost Tesla (TSLA.US) Capital Expenditures, With Support from SpaceX and xAI

Bloomberg News reports that Barclays states Tesla (TSLA.US) recently announced the “TeraFab” semiconductor manufacturing facility, which is likely to significantly increase the company’s capital expenditure beyond the $20 billion disclosed to investors earlier this year. However, the investment bank believes the company may receive some support.

Barclays analyst Dan Levy wrote in a client report: “It’s clear that our previous ‘optimistic scenario’ capex target (over $50 billion) for TeraFab appears quite conservative compared to Tesla’s expressed ambitions. Actual spending could be several times higher, and likely more than an order of magnitude. However, bullish investors seem prepared for this, because to win, you have to invest. It’s worth noting that we expect Tesla to proceed with the construction in multiple phases, gradually expanding toward a 1-terawatt capacity. Additionally, we anticipate Tesla, SpaceX, and xAI will all provide funding.”

Elon Musk previously announced the construction of TeraFab, one of the largest chip factories in history. Named “TeraFab,” this superfactory aims to achieve an annual computing capacity of over 1 terawatt (1000 gigawatts), covering logic, memory, and advanced packaging, jointly launched by SpaceX, Tesla, and xAI.

It is reported that TeraFab’s planned annual capacity is 10 to 20 billion AI and memory chips, equivalent to about 100,000 wafers per month, with a total investment estimated at $20 billion. The first mass-produced chips will be AI5, scheduled for production in 2027, for full self-driving (FSD), humanoid robots Optimus, Cybercab autonomous taxis, and data centers. Musk further revealed on social media that about 80% of the factory’s capacity will be used for space applications, with the remaining 20% for ground-based uses.

This is “one of the largest semiconductor manufacturing projects ever undertaken by a private company,” which will “make Tesla one of the world’s largest semiconductor manufacturers,” and will enable Tesla to no longer rely on TSMC, Samsung, or any external suppliers, controlling every layer of the AI stack from chips to software. It is also one of Tesla’s largest capital investments, funded by Tesla’s $44 billion cash reserves and supported by Musk’s long-term AI vision.

Musk stated, “We are very grateful to the existing supply chain, including Samsung, TSMC, and others, and hope they can scale up quickly. We will buy all their chips. I’ve told them this, and their capacity expansion speed has an upper limit, but it’s far below our expectations, so we are building TeraFab.”

Notably, at Tesla’s annual shareholder meeting in November 2025, Musk first mentioned the idea of building a chip factory. He said that to support the continuous iteration of Tesla’s full self-driving (FSD) software and the large-scale deployment of Optimus robots, Tesla’s chip demand will reach 10 to 20 billion chips annually. Even with the most optimistic capacity expansion by global wafer foundries, they cannot meet Tesla’s explosive future AI chip needs, making building a large-scale wafer factory “imperative.” During a demonstration at an Austin facility last Saturday, Musk pointed out, “Either we build TeraFab, or we have no chips available.”

The project will start with a smaller advanced manufacturing facility for designing and testing various chips, with plans to gradually expand into a larger operational system. The proposed wafer plant will produce two main types of chips: one for vehicles, robot taxis, and humanoid robots—low-power processors; and another for space computing—high-performance chips. Musk envisions supporting large-scale computing capabilities both on the ground and in orbit, though no specific timeline has been provided.