Tesla signs $16.5B next-gen chip supply deal with Samsung, Musk says

TEXAS (Agencies): Tesla has signed a $16.5 billion deal with Samsung to source next-generation AI6 chips, CEO Elon Musk said on Monday, a move expected to bolster the South Korean tech giant’s loss-making contract manufacturing business.

Samsung shares rose more than 6% after the news.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip. The strategic importance of this is hard to overstate,” Musk said in a post on his social media platform X.

If Musk was referring to Samsung’s upcoming Taylor, Texas, plant, the deal could revive the project that has faced delays amid Samsung’s struggles to retain and win major customers.

“Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency,” he added, calling it a “critical point” in striking the deal.

“I will walk the line personally to accelerate the pace of progress,” he said, noting Samsung’s Texas plant was “conveniently located not far from my house.”

While no timeline was provided for AI6 chip production, Musk has previously said that next-generation A15 chips will be produced at the end of 2026, suggesting A16 would follow.

Samsung currently makes Tesla’s A14 chips, which power its Full Self-Driving driver assistant system, while TSMC will make the AI5 initially in Taiwan and then Arizona, Musk has said.

Texas project

In October, Samsung had postponed taking deliveries of ASML chipmaking equipment for its factory in Texas as it had not yet won any major customers for the project, Reuters reported. It has already delayed the plant’s operational start to 2026.

Samsung, the world’s top memory chip maker, also produces logic chips designed by customers through its foundry business. The Texas project is central to Samsung Chairman Jay Y. Lee’s strategy to expand beyond its bread-and-butter memory chips into contract chip manufacturing.

Samsung currently trails a distant second in the global foundry market, with an 8% share versus leader TSMC’s 67% share, data from market researcher Trendforce show.

Samsung had earlier announced the $16.5 billion chip supply deal without naming the client, saying the customer had requested confidentiality about the details of the deal, which will run through the end of 2033.

The deal represents about 7.6% of Samsung’s projected annual sales for 2024, the company said.

Help foundry business
The news comes as Samsung, which is due to report its earnings on Thursday, faces mounting pressure in the race to produce artificial intelligence chips, where it trails rivals such as TSMC and SK Hynix. This lag has weighed heavily on its profits and share price.

Pak Yuak, an analyst at Kiwoom Securities, said the deal would help reduce losses at Samsung’s foundry business, which he estimated exceeded 5 trillion won ($3.6 billion) in the first half of the year.

Analysts say Samsung has struggled with the defection of key clients to TSMC for advanced chips. TSMC counts Apple, Nvidia and Qualcomm among its customers.

It is not clear whether the Samsung-Tesla deal is related to ongoing trade talks between Korea and the United States. Seoul is seeking U.S. partnerships in chips and shipbuilding amid last-ditch efforts to reach a trade deal to eliminate or reduce potential 25% U.S. tariffs.

Samsung has been losing market share to TSMC in contract manufacturing, underscoring technological challenges the firm faces in mastering advanced chip manufacturing to attract clients like Apple and Nvidia, analysts said.

Samsung Electronics is the flagship unit of South Korea’s Samsung Group, by far the largest of the family-run conglomerates that dominate Asia’s fourth-largest economy.

The company said this month that it expected operating profit to fall 56% year-over-year and 31% from the previous quarter, citing a slump in its core semiconductor division.