Tesla Partners Samsung For $16.5 Billion Advanced AI Chip Production At Texas Facility

Electric vehicle (EV) manufacturer Tesla has entered into a semiconductor agreement with smartphone major Samsung Electronics, valued at $16.5 billion, marking a significant milestone for both companies in the competitive artificial intelligence (AI) chip manufacturing sector, news agency Reuters reported on Monday. The partnership will see Samsung's Taylor, Texas fabrication facility produce Tesla's upcoming AI6 processors, providing a crucial boost to Samsung's struggling contract manufacturing division.

Samsung Stock Surges

Following the announcement, Samsung's stock price experienced a dramatic uptick, climbing as much as 6.8 per cent to reach its highest valuation since September of the previous year. This surge reflects investor confidence in the partnership's potential to revive Samsung's foundry operations, which have faced challenges securing major clients for their Texas manufacturing facility.

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Tesla CEO Elon Musk revealed that the collaboration extends beyond a simple supplier relationship, with Tesla providing assistance to optimise manufacturing processes at the facility.

"Samsung agreed to allow Tesla to assist in maximising manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house," Musk said in his social media announcement.

The Tesla executive also indicated that the $16.5 billion figure represents a baseline investment, suggesting potential for significantly higher production volumes. "The $16.5B number is just the bare minimum. Actual output is likely to be several times higher," he noted in a subsequent post.

Samsung Texas Facility Gains Major Customer

Industry analysts have been quoted as saying that the strategic importance of this partnership for Samsung's Texas operations. NH Investment & Securities senior analyst Ryu Young-ho emphasized the significance of securing Tesla as a client, noting that the facility had previously struggled to attract major customers.

The manufacturing plant, which has experienced operational delays and is now scheduled to begin production in 2026, had faced uncertainty regarding its viability. Reports from October indicated that Samsung had postponed equipment deliveries from ASML due to the absence of confirmed major clients.

Production Timeline

While specific production schedules for the AI6 chips remain undisclosed, industry experts project manufacturing to commence between 2027 and 2028. This timeline aligns with Musk's previous statements regarding Tesla's chip development roadmap, where next-generation A15 processors are expected by late 2026.

SK Securities analyst Lee Dong-ju provided the 2027-2028 production estimate, though acknowledged Tesla's historical tendency to miss projected timelines for technological milestones.

Currently, Samsung manufactures Tesla's A14 processors, which power the company's Full Self-Driving autonomous vehicle system. Meanwhile, TSMC is contracted to produce Tesla's AI5 chips, initially in Taiwan with future production planned for Arizona.

Implications For Samsung Foundry Business

This partnership represents a cornerstone of Samsung Chairman Jay Y. Lee's strategic initiative to diversify beyond the company's traditional memory chip business into contract semiconductor manufacturing. 

Despite being the world's leading memory chip producer, Samsung holds only an 8 per cent share of the global foundry market, thus, trailing industry leader TSMC's commanding 67 per cent market share, according to Trendforce data.

The deal, which extends through 2033, was initially announced by Samsung without identifying the customer, citing confidentiality requirements. Multiple industry sources subsequently confirmed Tesla as the unnamed client in the agreement.

Competitive Pressures

This collaboration emerges during a period of intense competition in artificial intelligence chip manufacturing, where Samsung faces mounting pressure from established players including TSMC and SK Hynix. The company's lag in this crucial sector has negatively impacted both profitability and stock performance.

The timing coincides with Samsung's upcoming earnings report, scheduled for Thursday, which will provide additional insight into the company's financial position and strategic direction in the semiconductor market.

Trade Policy Connections

While not explicitly confirmed, the partnership is likely to relate to ongoing trade negotiations between South Korea and the US. Seoul is actively pursuing American partnerships in semiconductor and shipbuilding sectors as part of efforts to secure favourable trade terms and potentially avoid proposed 25 per cent U. tariffs.