(Bloomberg) — Samsung Electronics Co. will produce AI semiconductors for Tesla Inc. in a new $16.5 billion pact that marks a win for its underperforming foundry division.
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South Korea’s largest company announced on Monday that it secured the 22.8 trillion won chipmaking agreement, which will run through the end of 2033. The plan is for an upcoming plant in Taylor, Texas, to produce Tesla’s next-generation AI6 chip, Tesla chief Elon Musk said on X, confirming a Bloomberg News report.
Samsung’s Seoul-traded shares rose 6.8% to their highest since September, while its suppliers like Soulbrain Co. jumped 16%. A Samsung spokesperson declined to comment, citing confidentiality terms in its contract.
“The strategic importance of this is hard to overstate,” Musk, 54, wrote on X. He described the value of the deal announced by Samsung as “just the bare minimum. Actual output is likely to be several times higher.”
The Tesla chief executive officer and X owner will walk the chip fabrication line himself and has been authorized by Samsung to assist in optimizing production, he said. The AI6 component will form the foundation of Tesla’s driving hardware suite for cars in coming years. Samsung produces the current AI4 system, according to Musk.
The contract win, the first after Executive Chairman Jay Y. Lee was cleared of all outstanding legal charges, comes as Samsung has been steadily losing ground in chip manufacturing. The company, which makes its own memory chips and also fabricates semiconductors on behalf of clients, has had difficulty bringing in enough orders to fully utilize its foundry capacity. It has postponed completion of construction and operational ramp-up of its new Texas fab to 2026.
“Their foundry business has been loss-making and struggling with under-utilization, so this will help a lot,” said Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore. “Tesla’s business may also help them to attract other customers.”
That’s in contrast to leading chipmaker Taiwan Semiconductor Manufacturing Co., which still cannot meet all demand. TSMC held a dominant share of 67.6% of the global foundry market in the first quarter this year, according to Taipei-based TrendForce. Samsung’s share slipped to 7.7% from 8.1% in the previous quarter.
Samsung and TSMC are both on pace to deliver the next generation of semiconductor advancement — moving to 2-nanometer fabrication — and the new deal is seen as a signal of confidence for the company’s upcoming fabrication technology.
While the contract may represent a small share of foundry revenue annually, it holds greater value as a catalyst for technological refinement and innovation over the long run, according to Ryu Young-ho, an analyst at NH Investment & Securities Co. It also helps burnish Samsung’s reputation as the strongest TSMC alternative at a time when Intel Corp. is struggling to win over investors skeptical about its long-term strategy and road map.
At Tesla, Musk has said the company’s future will depend on delivering the long-elusive goal of true self-driving technology. Last week, after a disappointing earnings report, he said the automaker will face “a few rough quarters” until it can deliver autonomous vehicles at scale — which he predicted for the second half of 2026 or by the end of the year.
Yet there is still skepticism about that target. Musk’s X posts following the Samsung deal imply that Tesla will adopt two different next-generation chips in short order that are crucial to its automated-driving systems. He wrote that the carmaker will go from currently sourcing AI4 chips from Samsung, to using AI5 chips from TSMC that have just been designed, to then using AI6 chips from Samsung.
The rapid-fire changes risk opening Tesla up to more blowback from car owners who were told back in 2016 that all the vehicles the company was making from then on had the hardware necessary to eventually drive autonomously. In early 2023, Musk said on an earnings call that Tesla was going to stop offering retrofits to customers whose cars were equipped with older-generation chips, citing the cost and difficulty of offering upgrades.
Tesla has made some progress in recent months toward competing with Alphabet Inc.’s Waymo by starting to offer a driverless taxi service in Austin. But the carmaker has yet to offer rides without any safety staff in its vehicles and early users posted videos of the robotaxis appearing to violate traffic laws. The suite of features Tesla markets as Full Self-Driving also still requires users to supervise the system at all times.
What Bloomberg Intelligence Says
Samsung Electronics’ new contract to supply semiconductors implies a recovery in its foundry business’ 2-nanometer generation chip production. The $16.5 billion contract spans 2025-33 and could boost Samsung’s foundry sales by 10% annually, we calculate.
— Masahiro Wakasugi and Takumi Okano
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–With assistance from Seyoon Kim, Linda Lew, Abhishek Vishnoi, Vlad Savov, Craig Trudell and Denny Thomas.
(Updates with Tesla’s self-driving efforts from 11th paragraph)
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