Tesla and Samsung agree $16.5 billion artificial intelligence chip manufacturing deal in Texas

Tesla has secured a significant £12.3bn partnership with Samsung to manufacture its forthcoming generation of artificial intelligence (AI) chips at the Korean firm’s new facility near Austin, Texas. This landmark agreement, valued at $16.5bn, marks a pivotal step for both companies and cements Texas as a major hub for high-tech innovation.

Announced in a regulatory filing by Samsung, the deal was later confirmed on social media by Elon Musk, who revealed that Samsung would be producing Tesla’s new AI6 semiconductors at the recently established Taylor plant. Musk commented on the strategic significance of the agreement, emphasising its potential to transform Tesla’s technological infrastructure. The proximity of the Taylor plant to Musk’s residence in Texas was highlighted as an added convenience for his hands-on approach to maximising manufacturing efficiency, with Musk personally committing to accelerating progress on-site.

The plant itself has faced delays in attracting significant clients until now, and this contract is expected to revitalise Samsung’s Texan operations. According to Ryu Young-ho, senior analyst at NH Investment & Securities in Seoul, the previously underused facility will gain new purpose and importance in global semiconductor manufacturing. Alvin Nguyen of Forrester, a research and advisory firm, described it as a mutually advantageous arrangement, granting Samsung a substantial US client while enabling Tesla to streamline its supply chains by sourcing chips domestically.

This development follows substantial investment from the US government. Almost £3.6bn in funding was awarded to Samsung’s Texas plant under the Chips Act, a major legislative effort to reduce American reliance on overseas chip production and to secure the supply of semiconductors vital for artificial intelligence and national security purposes.

Historically, Tesla’s AI4 chips—essential to its self-driving systems—have been produced by Samsung, while the newer AI5 chips are to be supplied by Taiwan’s TSMC, initially out of Taiwan and later from TSMC’s planned facility in Arizona. The present contract with Samsung runs through December 2033, as designated in regulatory documents, although further details remain confidential at Tesla’s request.

The conclusion of this agreement is poised to reshape competitive dynamics in the semiconductor and automotive industries. The operation of Samsung’s Texas plant, now secured by this notable client partnership, will be closely watched by both market analysts and industry rivals in the years to come.