Elon Musk’s SpaceX and Tesla will initially invest USD 16.8 billion to build Terafab, an advanced AI semiconductor complex in Texas’ Grimes County, with the aim of securing the chip capacity that the billionaire tech titan has called essential to the companies’ future.
“The facility is intended at narrowing the gap between global chip supply and the more than 1 terawatt of computing power that SpaceX and Tesla expect to need in the coming years,” the companies said.
“Future expansion phases could push total investment much higher,” SpaceX remarked, while adding that the facility would employ at least 3,000 people in the coming days.
“The Terafab is bringing cutting-edge manufacturing to America, creating thousands of high-paying jobs in the Lone Star State, and enabling us to produce AI chips at scale for use on Earth and in space,” Musk said, while reacting to the news.
The tech titan has been closely integrating AI efforts across his companies, with SpaceX acquiring his startup xAI earlier in 2026 in a deal focused on building space-based data centers, before going public in June in the world’s largest-ever IPO.
“The vertically integrated, 100-million-square-foot Terafab plant will make, package and test advanced logic and memory chips under one roof, producing processors needed to power Tesla’s Optimus robots and Cybercabs, as well as high-power chips to run SpaceX’s space-based data centers,” the companies said.
As per a May 2026 filing, SpaceX had proposed an initial investment of USD 55 billion to build the Terafab, with the total amount rising to USD 119 billion if extra phases are completed.
As part of the project, SpaceX earlier this year partnered with Intel, which has been trying to expand its chip manufacturing business as part of a turnaround effort.
In April, Tesla broke ground on a research facility at the North Campus of its Giga Texas plant, calling it the precursor to Terafab. The Grimes County site sits near the Gibbons Creek Reservoir, whose water Tesla and SpaceX are planning to use for industrial operations rather than local groundwater.
The Terafab development comes amid speculation about the possible merger between Tesla and SpaceX, with Musk citing growing overlap between the companies.
“As you can tell from the many collaborations on so many fronts with SpaceX, there’s more and more overlap. We can’t talk about, you know, combining companies and that kind of thing on an earnings call. It’s got to be done with the appropriate process,” he said during Tesla’s Q2 earning call on July 23.
Tesla already supplies batteries and manufacturing technologies for SpaceX projects, apart from collaborating on the Terafab project.
As a section of analysts believes that combining the companies could simplify Musk’s corporate empire and create a more integrated company spanning artificial intelligence (AI), robotics, manufacturing, energy, and space infrastructure.
“Operational integration between the two entities is already deep,” said JPMorgan analysts, while citing shared engineering talent, AI infrastructure, Terafab and Musk’s leadership as factors that “would facilitate an eventual combination.”
SpaceX President and Chief Operating Officer Gwynne Shotwell has also acknowledged potential benefits of the tie-up between the companies. During a June 2026 interview with CNBC, she said that folding the companies together “might make Elon’s life a little easier by streamlining management across his businesses.”
However, JPMorgan, in the same analysis note, also pointed to the “practical bottleneck” of getting regulatory approvals for both companies. Also, Musk controls a much larger voting stake in SpaceX than in Tesla, complicating governance considerations for Tesla’s public shareholders.