Tesla, whose CEO is Elon Musk, has signed a $16.5 billion chip supply agreement with Samsung Electronics. This agreement is expected to give a significant boost to Samsung’s loss-making contract manufacturing business. Samsung shares rose 7% following the news of the agreement.
Musk announced that Samsung will produce Tesla’s next-generation AI6 chip at its new chip factory in Taylor, Texas. This could revive the project, which has been facing challenges in attracting and retaining large customers for Samsung.
Musk stated that the agreement only included a “minimum” amount and that production would be much higher. Samsung currently manufactures Tesla’s AI4 chips, which power Tesla’s Full Self-Driving (FSD) system. TSMC will manufacture the AI5 chips, initially in Taiwan and then in Arizona. Analysts emphasize that this agreement will support Samsung’s chip manufacturing business and is crucial for Samsung’s Texas factory, in line with the company’s strategy. However, the fact that the factory still doesn’t have a large customer portfolio suggests that there may be difficulties in the period leading up to 2026, when production begins. The agreement aims to give Samsung a stronger position in contract chip manufacturing, going beyond memory chips. Currently, Samsung only holds 8% of the global foundry market, while the leader TSMC dominates 67%. The Tesla deal seems likely to alleviate Samsung’s chip manufacturing losses. In the second quarter of 2023, the company announced that its losses in the foundry business exceeded 5 trillion Korean Won (approximately $3.6 billion).
