Elon Musk Strikes $16.5B Chip Deal With Samsung To Power Tesla’s Next-Gen AI

Tesla CEO Elon Musk has confirmed that the electric carmaker has entered into a massive $16.5 billion agreement with Samsung Electronics to supply advanced chips, marking a major win for the South Korean tech giant’s struggling contract chipmaking arm.

Following the announcement, Samsung's shares soared by up to 6.8%—their highest level since September last year—while Tesla shares rose 1.9% in U.S. premarket trading.

The chips will be produced at Samsung’s new semiconductor facility in Taylor, Texas, and will power Tesla’s upcoming AI6 processors. These chips are critical to Tesla’s future self-driving technology and are expected to revive a project that has faced repeated delays.

“Samsung agreed to let Tesla help optimize manufacturing efficiency,” Musk posted on X. “This is crucial. I’ll personally be overseeing progress on-site. The fab is also conveniently located near my home.”

He added, “The $16.5 billion figure is just the starting point. Actual output will likely be much higher.”

According to Ryu Young-ho, senior analyst at NH Investment & Securities, “The Taylor facility had virtually no major customers until now, so this Tesla deal is highly significant.”

Previously, Samsung had delayed equipment installations at the Texas plant due to the absence of key clients. The start of production had already been pushed to 2026.

While no specific timeline was given for AI6 chip production, Musk previously stated that Tesla’s AI5 chips—set to be manufactured by TSMC—will begin production by late 2026. Analysts, including SK Securities' Lee Dong-ju, predict AI6 production may not begin until 2027 or 2028. However, Tesla is known for frequently missing its internal targets.

Currently, Samsung manufactures Tesla’s AI4 chips, which power the company’s Full Self-Driving (FSD) system. Tesla has tapped TSMC to handle production of its AI5 chips in Taiwan and later in Arizona.

Samsung, the world leader in memory chips, has been trying to expand its footprint in contract chip manufacturing, also known as foundry services. The Texas project is a centerpiece of Chairman Jay Y. Lee’s strategy to diversify beyond memory chips.

However, Samsung currently holds just 8% of the global foundry market, compared to industry leader TSMC’s 67%, according to data from TrendForce.

Samsung had previously announced the $16.5 billion chip order but withheld the client’s identity, citing a confidentiality request. Three sources later confirmed to Reuters that Tesla is the client.

The high-profile deal comes at a critical moment for Samsung. The company is under intense pressure in the artificial intelligence chip race, where it lags behind rivals like TSMC and SK Hynix. This shortfall has significantly dented its earnings and stock performance.

Samsung recently projected a 56% plunge in second-quarter operating profit, partly due to mounting losses in its foundry business. Analyst Pak Yuak of Kiwoom Securities estimates the division has already lost over 5 trillion won ($3.6 billion) in the first half of 2025 alone.

Industry analysts say Samsung has struggled to retain major clients, many of whom have shifted to TSMC for more advanced chip solutions. TSMC counts Apple, Nvidia, and Qualcomm among its biggest customers.

It remains unclear if this Tesla-Samsung deal is connected to broader trade negotiations between the United States and South Korea. Seoul is currently pushing for U.S. collaboration in key sectors like semiconductors and shipbuilding, as it seeks to avoid steep U.S. tariffs of up to 25%.