Elon Musk confirms discussions with TSMC about Terafab chipmaking collaboration

TSMC and Elon Musk's Terafab semiconductor production initiative are discussing a potential collaboration under which TSMC would build and operate a facility that will exclusively serve Elon Musk's Tesla, SpaceX, and xAI companies, according to Tim Culpan’s Culpium newsletter on Friday. Elon Musk confirmed the discussions early on Saturday, but did not elaborate.

"Just discussions, but something may come of it," Musk wrote in an X post, while TSMC has so far remained tight-lipped.

Under the arrangement Culpan considers most probable, TSMC would own and operate the new semiconductor production facility, while SpaceX/Terafab could invest in the venture, commit to buying a guaranteed volume of chips, or combine both approaches. However, the exact ownership structure remains under discussion. Another option would put SpaceX in control of the venture with the majority ownership; TSMC would invest less, but would still provide 'operational expertise' and process technologies. Perhaps, an interesting background detail from Culpium is that TSMC's rumored intentions to build a fab complex in Texas are tied to the foundry's effort to support Terafab.

The proposed 'Plan A' arrangement could resemble TSMC's JASM and ESMC joint ventures in Japan and Germany, where local partners provide capital and demand while TSMC contributes process technology and operates the fabs. The proposed 'Plan B' structure — under which SpaceX will hold the majority ownership of Terafab while TSMC would operate the facility and bring its own process technology — would be completely new for the world's No.1 contract chipmaker, though.

The development certainly raises questions about Intel's role in Terafab. For now, Intel is to supply its 1.4nm-class 14A process technology to Terafab, which would produce chips for Elon Musk's SpaceX, Tesla, and xAI. If TSMC becomes involved, then Intel's 14A could drop out of the game because TSMC will bring its own node.

Since nothing is official at this point, both 'Plan A' and 'Plan B' should be considered as speculations rather than the two options currently on the table, as there might be 'Plan C,' 'Plan D,' and even 'Plan E.'

TSMC is a leading advanced packaging supplier, so Musk's Terafab might be interested in making chips in Texas (presumably using Intel's 14A process technology) and then package them in Texas, which is where TSMC might come into play. Another thing to consider is that while Intel has a broad cross-patent license agreement with TSMC, Terafab does not, so producing chips using an Intel-developed node might infringe one of TSMC's patents, which might become a problem. To that end, Musk needs to keep TSMC close, perhaps to the point of buying into Terafab.

One thing to certainly keep in mind is that Elon Musk barely wants Terafab to become a foundry that competes against Intel Foundry, Samsung Foundry, or TSMC. What he needs is an uninterrupted and surplus supply of custom silicon to SpaceX, Tesla, and xAI to support their AI, automotive, and space vehicles. Given the rather broad strategic goal, Musk is probably very flexible when it comes to both tactics and strategy.

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