Tesla and SpaceX will spend US$16.8 billion to start building Terafab, a chip factory in Grimes County, Texas, Elon Musk announced on X on Thursday 6 August, a day after SpaceX faced local residents at a county meeting.
The Terafab site sits about an hour northwest of Houston at Gibbons Creek Reservoir, on the grounds of a coal power station that closed in 2018. The first phase will employ at least 3,000 people, and the plant will make, package and test advanced logic and memory chips, drawing its water from the reservoir rather than local groundwater. SpaceX said in a statement that the plant brings “cutting-edge manufacturing to America, creating thousands of high-paying jobs in the Lone Star State,” and would allow the companies “to produce AI chips at scale for use on Earth and in space.”
The confirmed figures stop there, and the rest of the project’s scale is Musk’s stated ambition, including a full build of more than 100 million square feet of manufacturing space across ten planned phases. Musk wrote on X that the finished facility would be “the largest and most valuable building on Earth by far” and “50x the size of the Pentagon.” SpaceX says the plant is meant to close the gap between chip supply and a projected need for “more than 1 terawatt of computing power.”
Why Musk says he needs the Terafab
Musk first floated the idea in November 2025, telling investors “I think we may have to do a Tesla TeraFab” because even the best-case output from suppliers “is still not enough.” Tesla wound down its Dojo supercomputer project in 2025 and now leans on outside foundries. Samsung’s fab in Taylor, Texas began producing Tesla’s AI5 chip on its 2 nanometre process in July, and Tesla holds a US$16.5 billion contract with Samsung for its next-generation AI6 chips, with TSMC supplying additional volume.
The new plant’s chips are destined for Tesla’s Optimus robots and Cybercab robotaxis, along with high-power processors for SpaceX’s planned space-based data centres. SpaceX also struck a partnership with Intel earlier this year to support its chip manufacturing push, though the arrangement remains vague. “It’s uncertain what Intel’s role will be or, for that matter, other foundry companies,” said Patrick Moorhead, chief analyst at Moor Insights & Strategy. The announcement lands in a difficult year for Tesla on the sharemarket, with the stock down about 29 per cent in 2026 despite bright spots such as record July deliveries in Australia.
SpaceX’s own paperwork describes a smaller commitment than Musk’s posts. The company’s May 2026 filing put the proposed initial Texas investment at US$55 billion and US$119 billion across all phases, while calling the plan “a general framework” with no binding obligations. The US$16.8 billion first phase announced on Thursday is less than a third of the initial figure in that filing, and neither company has publicly reconciled the numbers. When the project was first unveiled in March, the figure was US$25 billion.
Sceptics question whether carmakers and rocket builders can run a leading-edge fab at all. A modern leading-edge logic plant needs between 80 and 100 EUV lithography machines to support 20,000 to 30,000 wafer starts a month, according to Tech Times, and Apple’s silicon engineering group alone is many times larger than the combined chip teams at SpaceX and Tesla. When the plan was unveiled in March, one widely shared post on X said “I assign a major probability to this either failing or delaying much beyond the intended timeline.” Musk replied that scale itself was the strategy: “A super high production rate allows us to test very quickly what steps can be deleted, simplified or sped up, even after the design is fixed.”
Civil construction is expected to begin within months. Reported timelines target first chip production in late 2027, with volume manufacturing not expected before 2028.
