Musk Reveals $16.5 Billion Chip Deal with Tesla and Samsung Electronics

Major Deal Between Tesla and Samsung

Elon Musk, the CEO of Tesla, has announced a significant deal between the U.S. automaker and Samsung Electronics. The agreement involves a $16.5 billion contract for chip sourcing, which is expected to provide much-needed support to Samsung's struggling contract manufacturing business.

This development has already had an impact on the stock market, with Samsung shares rising over 6% following the news. Musk emphasized the strategic importance of this partnership in a post on X, stating that Samsung’s new Texas fabrication plant will be dedicated to producing Tesla’s next-generation AI6 chip. He highlighted the significance of this collaboration, noting that it could help revive a project that has faced delays due to Samsung’s challenges in securing major clients.

The deal also includes provisions for Tesla to assist in maximizing manufacturing efficiency at the Texas facility. Musk mentioned that he would personally oversee the progress, adding a personal touch to the collaboration. He also noted the convenient location of the factory, which is not far from his home.

While no specific timeline was provided for the production of the AI6 chip, Musk previously indicated that the next-generation A15 chips would be produced by the end of 2026, suggesting that the AI6 chip would follow shortly after.

Currently, Samsung produces Tesla’s A14 chips, which are used in its Full Self-Driving driver assistant system. However, TSMC will initially manufacture the AI5 chips in Taiwan before moving production to Arizona, according to Musk.

In October, reports indicated that Samsung had postponed receiving deliveries of ASML chipmaking equipment for its Texas factory. This delay occurred because the company had not yet secured any major customers for the project. The operational start of the plant has been pushed back to 2026.

Samsung, the world’s leading memory chip manufacturer, also engages in foundry services, where it produces logic chips designed by its customers. The Texas project is a key component of Samsung Chairman Jay Y. Lee’s strategy to expand beyond its traditional memory chip business into contract chip manufacturing.

Despite its position as a top memory chip maker, Samsung currently holds an 8% share in the global foundry market, significantly behind industry leader TSMC, which has a 67% share, according to data from Trendforce.

Samsung initially announced the $16.5 billion chip supply deal without revealing the client, citing confidentiality requirements. However, three sources familiar with the matter confirmed to DISCOVER TREND that Tesla was the customer involved in the deal. The agreement is set to last until the end of 2033.

Boosting the Foundry Business

This deal comes at a crucial time for Samsung, as it prepares to report its earnings. The company faces increasing pressure in the artificial intelligence chip market, where it lags behind competitors like TSMC and SK Hynix. This lag has had a negative impact on its profits and stock price.

Pak Yuak, an analyst at Kiwoom Securities, believes the deal will help reduce losses in Samsung’s foundry business, which he estimates exceeded 5 trillion won ($3.6 billion) in the first half of the year. Analysts note that Samsung has struggled to retain key clients who have shifted to TSMC for advanced chips. TSMC counts Apple, Nvidia, and Qualcomm among its major customers.

It remains unclear whether the Samsung-Tesla deal is connected to ongoing trade discussions between South Korea and the United States. Seoul is seeking U.S. partnerships in the chip and shipbuilding sectors as part of its efforts to negotiate a trade deal that could eliminate or reduce potential 25% U.S. tariffs.

Samsung has been losing market share to TSMC in contract manufacturing, highlighting the technological challenges the company faces in mastering advanced chip manufacturing to attract high-profile clients like Apple and Nvidia.