Musk announced Tesla's plans to get into chip manufacturing. How will this affect the market?

Elon Musk said that Tesla needs to build and launch its own chip manufacturing plant - TeraFab, Bloomberg writes. The most expensive automaker in the world is betting on artificial intelligence, autonomous driving and robotics - areas with virtually unlimited demand for chips, the agency notes. Tesla shares were up nearly 3% in premarket trading on Jan. 29.

Now Tesla buys microchips from Samsung Electronics and Taiwan Semiconductor Manufacturing (TSMC), Bloomberg points out. However, according to Musk, the existing suppliers are unable to provide Tesla with the necessary volumes of these products. "In order not to face capacity shortages in three or four years, we will have to build a Tesla TeraFab," the businessman said during a conference call following the automaker's quarterly earnings results.

"It will be a very large plant that will combine logic chip, memory and packaging production, all within the United States," Musk noted, emphasizing that the project will also be important to "protect Tesla from geopolitical risks." "People may be underestimating some of the geopolitical risks that will be an important factor in a few years," he added(quoted by Bloomberg).

At the same time, it is still unclear where exactly in the United States the plant will be built and in what time frame, the agency notes. Tesla plans to spend more than $20 billion in capital expenditures on its existing plants this year. Tesla has more than $44 billion in cash and investments on its balance sheet that the company can use to fund projects, Tesla CFO Vaibhav Taneja said in a teleconference.

Musk has repeatedly signaled in recent weeks that Tesla could set up its own chip production. "If we don't build a fab, we're going to hit what's called the 'chip wall,'" he said in early January in a podcast with Peter Diamandis, founder of the X Prize Foundation. "Essentially, we have two options: either face that limit or build our own factory."

Last November, Musk told Tesla shareholders that the company may have to build its own chip production facility. At that time, Tesla agreed to produce AI5 chips at Samsung Electronics in Korea and several TSMC facilities, The Korea Post reported.

The construction of advanced chip factories requires tens of billions of dollars in capital investments and takes years before such enterprises reach full capacity, Bloomberg notes. In addition, it requires sophisticated equipment from a range of suppliers, primarily from Europe's ASML Holding, the agency points out. Despite the scale of the task, building its own chip plant fits into Musk's "vertical integration" strategy, Bloomberg writes. Transferring the creation of critical components inside Musk's business empire allows his companies to develop much faster than it is possible with dependence on external supply chains, the agency explains.

This article was AI-translated and verified by a human editor