For months, Elon Musk has argued that the world’s biggest contract chipmaker cannot make enough of what his companies need. Now Taiwan Semiconductor Manufacturing Co. appears to be weighing whether to help him build it himself.
TSMC is evaluating a potential investment in Texas and has moved its discussions with Musk’s Terafab chip project from early talks into substantive assessment, Reuters reported on Tuesday, citing people familiar with the matter. The cooperation being studied could see TSMC help operate Terafab’s planned factories in Texas, or treat Terafab as an anchor customer for a new TSMC campus there.
Terafab is Musk’s answer to a supply chain he says is too concentrated in Taiwan. The venture, backed by Tesla, SpaceX and xAI, was announced in March at an event in Austin, with a stated goal of producing a full terawatt of AI computing capacity a year, a scale Musk claims exceeds the combined output of every chipmaker on Earth. Intel joined as a partner in April.
The project’s numbers are large even by semiconductor standards. Tesla and SpaceX confirmed the main site in Grimes County, Texas, in August, with a first-phase investment of $16.8 billion and plans to hire at least 3,000 workers. A SpaceX securities filing in May put the total potential buildout, across every phase, at up to $119 billion. The plan is to put chip design, manufacturing, memory, packaging and testing under one roof, targeting the 2-nanometer node.
Musk has not hidden his frustration with the alternative. He has told TSMC’s own chief executive, C.C. Wei, that Terafab would not need to exist if TSMC could keep up with his chip demand, and he said at a September event that chips may someday no longer be able to ship from Taiwan to the United States. Wei’s public reply has been pointed: there are no shortcuts in the foundry business, and a new fab takes two to three years to build and another one or two to ramp.
The talks surfaced through a report last week by the Asian technology newsletter Culpium, which said TSMC was looking at ways to help Terafab run its factories. Musk confirmed the discussions on X on October 3, writing “In discussions, but something may come of it.” TSMC itself has not confirmed the talks, and no terms, timelines or investment commitments have been disclosed.
For TSMC, a Texas move would sit alongside an already enormous American buildout. The company has committed $265 billion to its Arizona campus, a plan that includes six wafer fabs, two advanced packaging plants and a research center. A separate Texas campus, possibly near Dallas, would be a second U.S. hub, and Bloomberg reported the company weighing such a step just days before the Terafab talks came to light. Texas appeals for reasons beyond Terafab: an existing semiconductor ecosystem built by Samsung and Texas Instruments, abundant land and power, and customers that keep asking for capacity closer to home.
The strategic question is concentration. A $265 billion Arizona commitment was built on diversified demand from Apple, Nvidia, AMD and a long list of other fabless customers drawing on the same lines. A Texas campus built around Terafab would be a much more concentrated bet, tied to Musk’s execution, Tesla’s balance sheet and whether xAI’s computing workloads truly need capacity at the scale Musk claims.
Analysts are divided on whether the math works. Bernstein has estimated that producing a terawatt of AI computing would require between $5 trillion and $13 trillion in capital spending, the equivalent of building 140 to 360 fabs. Barclays has pointed to Tesla’s lack of chip-manufacturing experience, arguing that deep collaboration with TSMC, Samsung or Intel is the more practical path. Oppenheimer’s Rick Schafer sketched one outcome in which TSMC owns and runs a fab serving only Tesla, SpaceX and xAI.
The market read the news as a shift in the foundry order. Intel shares, which had risen on the April announcement that it would supply its 14A process to Terafab, fell more than 4% in premarket trading on the prospect that TSMC’s nodes could displace it. TSMC shares rose about 3% in Taiwan. Neither move reflects a signed deal, only a reassessment of who stands to win if Musk’s project becomes real.
For Musk, the prize is certainty. He has said his companies need as many as 200 billion AI chips a year for autonomous vehicles, humanoid robots and orbital data centers, and that Terafab is the only way to guarantee supply if geopolitics interrupts the flow from Taiwan. For TSMC, the decision is whether to stake a piece of its American future on that conviction, or to let a customer of that size build the capacity somewhere else. The talks have moved from whether to how, and the next months will show how far each side is willing to go.
