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Samsung Electronics has won a $16.5bn order to produce Tesla’s next generation of custom artificial intelligence chips, raising hopes of a turnaround in the South Korean tech giant’s struggling contract chipmaking business.
The eight-year contract, announced by Samsung in a regulatory filing and confirmed by Tesla chief executive Elon Musk on Monday, is the biggest deal that Samsung’s chip business has won from a single customer. Its value is equivalent to 7.6 per cent of the company’s 2024 revenue. Samsung shares rose 6 per cent on the news.
Musk wrote on his social media platform X that Samsung would produce Tesla’s next-generation AI6 chip at its new manufacturing facility in Texas, part of a $40bn investment made by the South Korean company with assistance from subsidies under former US president Joe Biden’s Chips and Science Act.
The custom chip will be used to power Tesla’s autonomous driving and humanoid robot technologies. Musk noted during a second-quarter earnings call last week that he hoped the AI6 chip could also be used in data centres to power Tesla’s video-based AI model training programmes. That would allow Tesla to reduce its reliance on general-purpose graphics processing units produced by companies such as Nvidia and AMD.
Musk said Samsung had “agreed to allow Tesla to assist in maximizing manufacturing efficiency” and that he would “walk the line personally to accelerate the pace of progress”.
“The fab is conveniently located not far from my house,” added Musk, who also said “the strategic importance of this is hard to overstate”. He later posted that the $16.5bn figure was “just the bare minimum”.
“Actual output is likely to be several times higher,” he said.
The announcement marks a victory for Samsung as it struggles to gain foundry market share from global leader Taiwan Semiconductor Manufacturing Company, Tesla’s contract chip partner for the AI5 chip, which is expected to enter mass production towards the end of this year.
The South Korean company this year had delayed until 2026 the start of operations in its 2-nanometre chip plant in Taylor, Texas, as it struggled to persuade large customers to switch from TSMC, which has also built manufacturing facilities in the US.
Macquarie analysts warned in September last year that Samsung’s $17bn facility could end up as a “big stranded asset” owing to a lack of big clients, while the South Korean technology group’s contract chipmaking business is estimated to have suffered a Won4tn ($3bn) operating loss in the first half of this year.
Samsung’s memory chip business has struggled in the race to produce advanced memory chips for use in AI systems.
The company, which will report full second-quarter earnings on Thursday, this month projected a 56 per cent drop in second-quarter operating profit compared with the same quarter last year, amid US restrictions on China and its failure to pass stringent performance tests to supply key customer Nvidia with advanced memory products.
Kim Yang-paeng, a researcher at Korea Institute of Industrial Economics and Trade, said the Tesla deal would help Samsung’s foundry in Texas to improve its yields — the share of usable chips produced from a given number of wafers — and broaden its customer base.
“Winning a big order from a global company can prompt other big tech companies to consider Samsung as an alternative to TSMC,” he said.
Some analysts have questioned whether the Tesla deal can prove profitable for Samsung, citing its struggle to raise yields at its Taylor facility and the likelihood that the South Korean company would have had to offer Tesla very generous terms to tempt it away from TSMC.
But Daniel Kim, an analyst at Macquarie, said the deal was “still meaningful regardless of its profitability, in that it will enable Samsung to start operations of the Taylor fab and to gain experience in using its 2-nano process technology”.
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