Musk Reveals $16.5B Chip Deal with Tesla and Samsung

Major Deal Between Tesla and Samsung

Tesla CEO Elon Musk recently announced a significant deal with Samsung Electronics, involving a $16.5 billion agreement to source chips from the South Korean tech giant. This move is expected to provide much-needed support to Samsung's struggling contract manufacturing business.

Following the announcement, Samsung's shares saw a notable increase, rising as much as 6.8% to their highest level since September of last year. The deal centers around Samsung's new chip factory located in Taylor, Texas, which will be responsible for producing Tesla's next-generation AI6 chip. This project has faced delays due to challenges in retaining and attracting major clients, but the partnership with Tesla could potentially revitalize it.

Musk expressed his enthusiasm for the collaboration, stating that Samsung would allow Tesla to assist in maximizing manufacturing efficiency. He emphasized that he would personally oversee the progress, highlighting the convenience of the factory's location near his home. In another post, Musk noted that the $16.5 billion figure was just the minimum, suggesting that the actual output could be several times higher.

Strategic Implications for Samsung

According to a senior analyst at NH Investment & Securities, Ryu Young-ho, the order from Tesla is particularly significant for Samsung's Taylor fab, which had previously struggled to attract customers. In October, it was reported that Samsung had postponed taking deliveries of ASML chipmaking equipment for its Texas factory due to a lack of major customers. The plant's operational start was delayed to 2026, underscoring the challenges faced by Samsung in this venture.

While no specific timeline was provided for the production of the AI6 chip, Musk previously mentioned that next-generation A15 chips would be produced by the end of 2026, suggesting that A16 would follow. Lee Dong-ju, an analyst at SK Securities, expects production to begin in 2027 or 2028, although Tesla has a history of missing its targets.

Expanding Beyond Memory Chips

Samsung currently produces Tesla's A14 chips, which power its Full Self-Driving driver assistant system. Meanwhile, TSMC is set to manufacture the AI5 chips initially in Taiwan and later in Arizona. As the world's top memory chip maker, Samsung also engages in logic chip production through its foundry business. The Texas project is a crucial part of Samsung Chairman Jay Y. Lee's strategy to expand beyond its traditional memory chips into contract chip manufacturing.

Despite its position as a leading memory chip producer, Samsung holds only 8% of the global foundry market, far behind industry leader TSMC, which commands a 67% share, according to data from Trendforce. Samsung had previously announced the $16.5 billion chip supply deal without naming the client, citing confidentiality requests from the customer, which will run through the end of 2033. Three sources confirmed to DISCOVER TREND that Tesla was the client behind the deal.

Supporting Samsung's Foundry Business

The deal with Tesla comes at a critical time for Samsung, as it faces increasing pressure in the race to produce artificial intelligence chips, where it lags behind competitors like TSMC and SK Hynix. This lag has impacted its profits and share price. Analyst Pak Yuak from Kiwoom Securities noted that the deal could help reduce losses at Samsung's foundry business, which he estimates exceeded 5 trillion won ($3.6 billion) in the first half of the year.

Analysts have pointed out that Samsung has struggled to retain key clients, with many moving to TSMC for advanced chips. This highlights the technological challenges the company faces in maintaining relevance in the capital-intensive chip manufacturing industry. TSMC counts Apple, Nvidia, and Qualcomm among its customers.

It remains unclear whether the Samsung-Tesla deal is connected to ongoing trade talks between South Korea and the United States. Seoul is seeking U.S. partnerships in chips and shipbuilding as part of efforts to address potential 25% U.S. tariffs.