Musk Plots Tesla Mega AI Chip Factory, Eyes Intel Partnership

• Tesla’s  (TSLA) shareholders approved Elon Musk’s $1 trillion compensation package, reinforcing the company’s shift from electric vehicles to AI and robotics leadership through advanced autonomous systems.
• The fifth-generation AI5 chip, set for limited 2026 production and high-volume 2027 rollout, is optimized for Tesla’s Full Self-Driving software, offering superior power efficiency and cost savings compared to Nvidia’s (NVDA) Blackwell.
• To address chip supply constraints, Musk proposed building a massive “terafab” for 100,000 monthly wafer starts and hinted at potential collaboration with Intel (INTC) to bolster manufacturing capacity.

Elon Musk’s recent remarks at Tesla’s (TSLA) annual shareholder meeting underscore the company’s accelerating pivot toward artificial intelligence and robotics, a strategic evolution that received resounding endorsement from investors through the approval of his $1 trillion compensation package spanning the next decade. This package not only aligns executive incentives with long-term technological breakthroughs but also signals confidence in Tesla’s capacity to transcend its electric vehicle roots, positioning it as a formidable player in AI-driven autonomy.

Central to this ambition is Tesla’s development of its fifth-generation AI chip, known internally as AI5, designed specifically to propel the company’s Full Self-Driving software and broader autonomous systems. Currently reliant on fourth-generation chips, Tesla anticipates producing a limited quantity of AI5 units in 2026, with high-volume manufacturing ramping up only in 2027. Musk has further outlined plans for the subsequent AI6 chip, which will leverage the same fabrication facilities but deliver approximately twice the performance, targeting volume production by mid-2028. These chips are engineered for seamless integration with Tesla’s proprietary software, emphasizing power efficiency and cost-effectiveness – qualities that could provide a competitive edge in scaling robotaxi fleets and humanoid robotics like Optimus.

Yet, Musk candidly addressed a critical bottleneck: even optimistic projections from existing suppliers fall short of Tesla’s voracious demand for computational power. To bridge this gap, he proposed constructing a massive semiconductor fabrication facility, dubbed a “terafab,” capable of at least 100,000 wafer starts per month. This scale dwarfs typical gigafabs and reflects the unprecedented volume required to fuel Tesla’s AI ecosystem, including training vast neural networks on real-world driving data via the Dojo supercomputer. Such a facility would not only secure supply chain independence but also allow Tesla to iterate rapidly on chip architectures tailored to inference tasks in vehicles and robots, areas where general-purpose GPUs from competitors often prove inefficient.

In parallel, Musk floated the possibility of collaboration with Intel (INTC), whose foundries could serve as a near-term bridge while Tesla builds its own infrastructure. No formal agreement exists, but the overture arrives at a pivotal moment for Intel, which trails Nvidia (NVDA) in AI accelerators and recently secured a 10% equity infusion from the U.S. government to bolster its domestic manufacturing prowess. Intel’s shares are up mor than 1% to $37.73 in premarket trading following Musk’s comments, highlighting market optimism for any partnership that might utilize its advanced nodes for external clients. Tesla already collaborates with Taiwan Semiconductor Manufacturing Company (TSM) and Samsung for chip production, yet Musk emphasized that diversification alone cannot meet the exponential growth in compute needs driven by petabyte-scale datasets from Tesla’s global fleet.

This push into chipmaking aligns with broader industry dynamics, where AI hardware has become the linchpin of innovation. Nvidia’s dominance with its Blackwell platform, which commands premium pricing for high-performance training and inference, exemplifies the stakes: Tesla’s AI5 is projected to consume about a third of Blackwell’s power while costing roughly 10% as much to produce. By internalizing fabrication, Tesla could undercut such economics, much like its vertical integration in battery production has reshaped electric vehicles. Musk’s intensity on this front – evident in his declaration of having “chips on the brain” – mirrors the founder’s pattern of tackling supply constraints head-on, from founding The Boring Company to acquiring SolarCity.

Ultimately, Tesla’s foray into semiconductor self-sufficiency represents a high-stakes bet on AI as its next growth engine. With shareholder backing secured and timelines for next-generation chips firmly in view, the company is poised to challenge incumbents not just in software but in the very silicon that powers intelligence at scale. As Musk navigates these ambitions, the terafab emerges as a tangible symbol of Tesla’s resolve to redefine mobility through unrelenting computational might.

WallStreetPit does not provide investment advice. All rights reserved.

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