What do artificial intelligence, self-driving cars, and space missions have in common? Chips — the semiconductors that let the most advanced technologies of our time work. Demand for these components keeps climbing, so much so that many companies have started making them in-house to avoid depending on outside suppliers.
That is the backdrop for the alliance between Tesla and SpaceX. The two companies led by Elon Musk have launched Terafab, a semiconductor gigafactory that will rise in Grimes County, Texas, north of Houston. The initial planned investment is $16.8 billion, and the project promises to change the way microchips are designed and built in the United States.
How Terafab works and why it will reshape chip production
Chip manufacturing today is highly fragmented: typically one company designs the circuit, another prints it onto silicon, a third assembles it, and a fourth runs the functional testing. That process is often spread across different countries, which stretches production times even further.
Terafab aims to break that model by bringing every step under a single roof for the first time. That is why the Texas plant will be enormous — more than 100 million square feet of floor space — and will employ over 3,000 specialists. Little surprise, then, that the project has drawn strong public backing from the Texas state government, which has committed a $30 million grant through the Texas Enterprise Fund.
If the state government has welcomed the initiative enthusiastically, the same cannot be said of the local community. During public meetings held in Grimes County, many residents voiced serious concerns about the transparency of the negotiations and the tax incentives granted to the two giants.
To limit its environmental footprint and avoid draining local groundwater reserves — which are essential for cooling in microelectronics — the plant will draw water directly from the nearby Gibbons Creek reservoir.
What Tesla and SpaceX’s new chips will power in AI
Terafab grew out of an internal estimate by SpaceX and Tesla, according to which the amount of computing power their future projects will require will soon exceed the combined output of every chip factory on the planet. The chips produced inside the gigafactory are meant to be the backbone of several breakthrough innovations.
In mobility and robotics, they will power the Cybercab — the self-driving taxi with no steering wheel or pedals — and the Optimus humanoid robots, designed to take over the heaviest or most repetitive jobs. In space, they will supply the computing power for the orbital data centers SpaceX is developing to handle massive data flows directly in orbit.
How much does the Terafab project cost?
The $16.8 billion agreed for the start of construction is only the first piece of a much larger picture. According to official documents filed ahead of SpaceX’s planned stock market listing, the full Terafab plan is described as a long-term project whose total cost could reach $119 billion.
In the meantime, to meet its most immediate technology needs before the facility is finished, Tesla will keep relying on the industry’s established partners. Musk’s company has already signed a $16.5 billion deal with Samsung for its next-generation AI6 chips, and it maintains active collaborations with Taiwanese giant TSMC and with Intel.
The birth of Terafab marks an important step in the evolution of critical technologies in the United States, especially given the new challenges America faces in artificial intelligence and aerospace.
Editor’s note
This article was originally published in Italian on money.it by Emanuela Ceccarelli on August 13, 2026 as «SpaceX e Tesla lanciano fabbrica chip da 16,8 Mrd USD in Texas». It has been translated and adapted for an international audience by the Money.it International desk.
