Terafab Partnership: Intel Joins Elon Musk's Forces to Build Tesla and xAI Chips
Why Intel as a Tech Licensor for Terafab is a Bigger Strategic Win than Being a Foundry
Less than two months after his first public hint of cooperating with Intel to manufacture chips at Tesla’s annual general meeting in March 2026, Elon Musk is seen shaking hands with Intel CEO Lip-bu Tan for a formal partnership.
“Intel is joining Terafab! SpaceX, xAI, and Tesla are launching the most epic chip-building effort ever - combining logic, memory, and advanced packaging under one roof → http://terafab.ai,” wrote SpaceX on its X account.
Meanwhile, also on X, Intel posted a photo of Musk and Tan shaking hands, “Intel is proud to join the Terafab project with SpaceX, xAI, and Tesla to help refactor silicon fab technology. Our ability to design, fabricate, and package ultra-high-performance chips at scale will help accelerate Terafab’s aim to produce 1 TW/year of compute to power future advances in AI and robotics.”
Tan has an ear-to-ear smile. And Musk’s smile is kind of “complicated.”
This is somewhat different from Elon Musk's announcement in late March that Terafab will be making AI chips as a joint venture between xAI, SpaceX, and Tesla.
The participation of Intel means Musk must have realized that semiconductor manufacturing is not as simple as he would have imagined.
Andrew Lu, a senior securities analyst based in Taiwan, pointed out that this move displaces Samsung as the expected logic partner, though TeraFab likely still needs to license memory technology (HBM and NAND) from the South Korean giant.
What is the role of Intel in this project? Lu speculates that Intel will license its technology instead of serving as a foundry, because the profit margins of licensing fees are much higher than doing the manufacturing for Terafab. This way, the collaboration would be a strategic win for Intel.
Elon Musk faces massive hurdles to reach a target capacity of 100k to 1 million wafers per month, including:
Supply Chain Competition: Fighting industry giants like TSMC for equipment with 6–12 month lead times.
Material Shortages: Addressing deficits in ABF substrates and advanced packaging capacity (Intel can help with its EMIB).
Technical Steepness: Overcoming yield learning curves and the extreme difficulty of manufacturing proprietary semiconductor equipment.
According to AI-mode Google Search, analysts’ opinions are mixed. Notice that it is good news for Intel, but less for Tesla.
Positive Analyst Sentiment & Strategic Wins
Validation of Turnaround: Analysts view the partnership as a major vote of confidence in Intel’s ability to re-establish itself as a leading chip manufacturer.
“Important Step” for Foundry: D.A. Davidson analyst Gil Luria described it as an “important step” in Intel’s restructuring, showing the company can support major clients in crucial projects.
Stock Boost: Intel (INTC) stock rallied by over 4% following the announcement, reflecting investor optimism about Intel securing a key role in Musk’s ambitious AI infrastructure plans.
Synergy in Manufacturing: The deal leverages Intel’s expertise in design, fabrication, and advanced packaging to help Terafab meet its goal of 1 terawatt per year of computing power, a crucial requirement for Musk’s AI and robotics ambitions.
Merger Speculation: Wedbush analysts suggested the Terafab facility could be a precursor to a potential merger between Tesla and SpaceX, with Intel as a key partner.
Risks & Skepticism
Execution Challenges: While Musk aims for high-speed production, analysts note that advanced semiconductor manufacturing is “brutally difficult” and requires intense, long-term discipline that may not align with a fast-moving, “startup-like” approach.
“Closed-Loop” Concern: Some analysts have pointed out that for now, Terafab appears to be a closed-loop system for Musk’s companies, rather than a broad, open-market win for Intel Foundry to secure customers like Apple or Nvidia.
Capacity Questions: Concerns have been raised about whether Intel can meet Terafab’s demands while managing its existing, high-volume production, given its past challenges with capacity.
Timeline Skepticism: Other analyst reports have previously labeled Terafab a “herculean task” that may not produce high-volume, advanced chips until roughly 2028.
Since Terafab is new to semiconductor manufacturing, Lu expects a “hitting the wall period (撞牆期)” lasting years or even a decade.