Elon Musk announces $16.5-billion chip supply deal between Tesla, Samsung

Globe and Mail

3 days ago

Tesla Inc. TSLA-Q CEO Elon Musk said the U.S. automaker had signed a US$16.5-billion deal to source chips from Samsung Electronics Co Ltd SSNLF, a move expected to bolster the South Korean tech giant's loss-making contract manufacturing business.
Samsung's shares jumped as much as 6.8 per cent to their highest since September last year after news of the deal. Tesla shares were up 1.9 per cent in U.S. premarket trading.
Musk said Samsung's new chip factory in Taylor, Texas will make Tesla's next-generation AI6 chip, potentially re-energizing the project that has faced long delays amid Samsung's difficulties in retaining and attracting major clients.
'Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,' Musk said in a post on X on Monday.
'The $16.5B number is just the bare minimum. Actual output is likely to be several times higher,' he said in another post.
According to a senior analyst at NH Investment & Securities, Ryu Young-ho, Samsung's Taylor fab 'so far had virtually no customers, so this order is quite meaningful.'
In October, Reuters reported that Samsung had postponed taking deliveries of ASML chipmaking equipment for its Texas factory as it had not yet won any major customers for the project. It has already delayed the plant's operational start to 2026.
While no timeline was provided for AI6 chip production, Musk has previously said that next-generation AI5 chips will be produced at the end of 2026, suggesting AI6 would follow.
Lee Dong-ju, an analyst at SK Securities, expects production in 2027 or 2028, but Tesla has a history of missing its targets.
Samsung currently makes Tesla's AI4 chips, which power its Full Self-Driving driver assistant system, while TSMC is slated to make the AI5, initially in Taiwan and then Arizona, Musk has said.
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Samsung, the world's top memory chip maker, also produces logic chips designed by customers through its foundry business. The Texas project is central to Samsung Chairman Jay Y. Lee's strategy to expand beyond its bread-and-butter memory chips into contract chip manufacturing.
It holds just eight per cent of the global foundry market, far behind industry leader TSMC, which has a 67 per cent share, data from market researcher Trendforce show.
Samsung had earlier announced the US$16.5-billion chip supply deal without naming the client, saying the customer had requested confidentiality about the details of the deal, which will run through the end of 2033.
Three sources briefed about the matter told Reuters that Tesla was the customer for the deal.
The deal with Tesla comes as Samsung, which is due to report its earnings on Thursday, faces mounting pressure in the race to produce artificial intelligence chips, where it trails rivals such as TSMC and SK Hynix. This lag has weighed heavily on its profit and share price.
Earlier this month, Samsung projected a 56 per cent drop in second-quarter operating profit, partly due to widening losses of its foundry business.
Pak Yuak, an analyst at Kiwoom Securities, said the deal would help reduce losses at Samsung's foundry business, which he estimates exceeded five-trillion-won (US$3.6-billion) in the first half of the year.
Analysts say Samsung has struggled to retain key clients, with many defecting to TSMC for advanced chips, underscoring technological challenges the firm faces in the race to stay relevant in the capital intensive business.
TSMC counts Apple, Nvidia and Qualcomm among its customers.
It is not clear whether the Samsung-Tesla deal is related to ongoing trade talks between South Korea and the United States. Seoul is seeking U.S. partnerships in chips and shipbuilding amid last-ditch efforts to reach a trade deal to eliminate or reduce potential 25 per cent U.S. tariffs.