Musk says Tesla needs to build its own chip factory to avoid constraints and secure future AI growth

Tesla Inc. is considering building its own semiconductor manufacturing facility as chip supply constraints threaten its growth in artificial intelligence and autonomous technologies, according to CEO Elon Musk.

Musk said on a recent earnings call that the EV giant faces a choice between “hitting the chip wall” or building its own multi-billion-dollar chip fabrication facility, dubbed “Terafab,” to support its AI, autonomy, and robotics ambitions.

Musk warned that current suppliers cannot meet Tesla’s volume requirements and that geopolitical risks make in-house production necessary for the electric vehicle and robotics company.

The announcement comes as Tesla prepares for production of its AI5 chip, which is expected to yield the first silicon samples in late 2026, with high-volume manufacturing targeted for 2027.

Samsung’s Texas foundry will begin testing extreme ultraviolet lithography equipment in March 2026 to support AI5 production in the second half of the year.

Tesla is also exploring a potential collaboration with Intel for the Terafab facility, while investing $2 billion into xAI to bolster its AI hardware and software capabilities.

Musk has emphasized the critical nature of the AI5 chip, stating that “solving AI5 was existential” for Tesla and personally dedicating every Saturday for several months to its development.

The company plans to begin Cybercab production in April 2026, initially equipped with AI4 chips before transitioning to the more advanced AI5.

Tesla is targeting a nine-month design cycle for future chips, including AI7, AI8, and AI9, down from the traditional yearly timeline.