Tesla Stock Rises As Elon Musk Announces Terafab Project

Tesla (TSLA) had its best day since early February on Monday, following a formal announcement that the EV giant will build a semiconductor factory in collaboration with SpaceX and xAI.

Tesla stock closed the day up 3.5%. It was Tesla’s best day in the stock market since another 3.5% gain on Feb. 6. Shares rose as much as 4.7% on Monday.

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Elon Musk’s companies have no experience in chip manufacturing, but aim to take on Samsung and Taiwan Semiconductor Manufacturing (TSM) in the most-advanced chips.

The new project, dubbed “Terafab,” had been teased earlier this month, and hinted at months ago. However, an official announcement came Saturday during an event in Austin, Texas.

The name refers to the project’s goal of producing 1 terawatt of computing annually, double the current U.S. consumption of half a terawatt a year, according to Tesla. Tesla will use the chips to power its vast AI ambitions, which include its Full Self-Driving software, robotaxi program and Optimus robots.

The joint project is expected to cost $25 billion. Tesla working with SpaceX and xAI, which are merging, may help spread the costs around.

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Tesla Stock Up In Early Trade

Shares rose 3.5% on Monday, buoyed by a broad market bounce as President Donald Trump delayed a threat to attack Iranian power plants, citing “productive” talks with Iran.

Tesla stock fell 5.9% last week to 367.96, dropping below its 200-day average for the first time in months. Intraday Friday, TSLA hit 364.96, retracing a 36% rally from a 367.71 buy point last September. Shares are down about 15% so far in 2026.

Tesla stock is down just under 25% since reaching an all-time high of 498.83 in December.

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Terafab Chips

According to CEO Elon Musk the Terafab will ultimately become a vertically integrated facility that can do every part of the semiconductor manufacturing process. The Terafab will build two chips: The high-power AI5 and AI6 inference chips intended for Tesla cars and Optimus robots, and the D3 chip, which will be specialized for SpaceX’s orbital data centers.

Tesla already designs some chips in-house. However, it has already had to delay plans of its new AI5 chip to mid-2027 due to manufacturing constraints.

Eventually about 80% of the semiconductors built at the Terafab will be D3 units to be used in space, with the remaining dedicated for terrestrial use, according to Saturday’s presentation. These chips would be used for SpaceX’s plans to launch data centers in space, which Musk says are needed in order to generate enough computing power to run AI systems in the future.

Musk has said that space-based data centers will be coming soon, but many experts see significant cost and technical hurdles.

Musk said his companies had asked their current semiconductor suppliers such as Micron Technology (MU), Taiwan Semiconductor Manufacturing (TSM), and Samsung to expand more quickly. However, the pace at which they were comfortable doing so was slower than he would have liked, Musk said.

“We either build the Terafab or we don’t have the chips,” he said during his presentation. “And we need the chips. So we’re going to build the Terafab.”

Elon Musk’s big ambitions often fall short. Tesla still hasn’t met its goals from its 2020 Battery Day event. Trying to vault into elite chip manufacturing with no experience would be far more challenging.

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