TSMC in Talks with Elon Musk Over Terafab

TSMC, the world’s largest contract chipmaker, is exploring opportunities to expand its operations in Texas and has confirmed that it is in talks about Terafab, a semiconductor project spearheaded by Elon Musk. The discussions come at a pivotal time for the chip industry, as demand for AI processors continues to surge. Even companies with deep pockets are increasingly looking for ways to secure reliable supplies of advanced chips.

TSMC has already sent teams to Texas to evaluate potential investment opportunities. However, no agreement has been reached, and the structure of any potential investment remains undecided. The company’s chairman stressed that any facility manufacturing TSMC chips would have to be operated by TSMC itself, a Taiwanese company. That condition is significant because Musk has previously said that Tesla and SpaceX would build and run Terafab on their own. As a result, the talks are likely to focus not only on funding and production capacity, but also on who would ultimately control the manufacturing process.

For Musk, the main goal is to reduce reliance on outside suppliers. Tesla needs increasingly sophisticated chips for its self-driving technology and robots, SpaceX is expanding its own infrastructure, and xAI requires vast amounts of computing power. Building dedicated manufacturing capacity could help Musk’s companies secure chip supplies and develop processors tailored to their specific needs. Still, Terafab is unlikely to replace existing suppliers anytime soon. Building a semiconductor fab is one challenge; achieving high yields, consistent quality, and large-scale production is another.

For TSMC, a potential partnership would open the door to another major project at a time when the company is already racing to expand its manufacturing capacity. In the third quarter of 2026, revenue rose 51% year over year to $46.7 billion, while net profit climbed 69% to $23.6 billion. TSMC expects to spend between $60 billion and $64 billion on capital investments in 2026 and has raised its forecast for full-year revenue growth to around 44%.

The talks also reflect a broader shift across the semiconductor industry. TSMC’s biggest customers are looking to secure access to chips, and some are developing their own processors at the same time. This could reshape the relationship between chipmakers and technology companies. Rather than relying solely on external suppliers, major players are increasingly seeking greater control over their entire supply chains. For TSMC, that creates opportunities to win new business, but it also makes capacity planning more complicated as customers pursue increasingly different strategic goals.

For now, Terafab remains a proposal under discussion, not an operational factory that could materially affect either company’s financial performance. If TSMC does join the project, it would suggest that even Musk, who is known for his drive to build things in-house, recognizes how difficult it would be to replicate the Taiwanese chipmaker’s expertise quickly. For investors, the key question is whether Terafab will eventually deliver meaningful additional production capacity or remain an expensive attempt to reduce dependence on existing chip suppliers.

Source: XTB Research