Tesla’s $16.5 billion deal with Samsung, announced on July 27, is a tentative sign of a recovery for the struggling chipmaker, according to analysts surveyed by EE Times.

Tesla CEO Elon Musk said in a post on X that Samsung will make the electric vehicle company’s next-generation AI chip at its stalled fab in Taylor, Texas.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip,” Musk said. “TSMC will make AI5, which just finished design, initially in Taiwan and then Arizona.”

The announcement is the first sign of a turnaround for the Samsung fab, the opening of which has been delayed by the company’s difficulties in finding customers for its gate-all-around (GAA) technology.

Samsung put the brakes on its new fab in Taylor, Texas more than a year ago, even after the Department of Commerce (DoC) conditionally awarded the company a $6.6 billion stimulus package under the CHIPS Act.

The first Taylor fab is expected to be operational in 2026, followed by a second in 2027, Samsung told EE Times in August last year.

The Tesla deal with Samsung will extend to the end of 2033, Forbes reported.

Samsung, which in 2022 claimed chip tech leadership by being the first to start production at the 3-nm node, took a move some industry experts agreed was too risky. In the meantime, Samsung’s memory business has fallen behind that of its smaller rival, SK Hynix, in the race to supply high-bandwidth memory vital for the expansion of AI.

“Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency,” Musk said. “This is a critical point, as I will walk the line personally to accelerate the pace of progress. The fab is conveniently located not far from my house.”

Samsung is making Tesla’s latest AI4 chip that runs the Autopilot feature on the company’s EVs.

In November 2021, Samsung announced the Taylor, Texas project as part of a $17 billion investment plan. 

Tesla faces its own challenges as Chinese EV makers capture more market share. In 2023, China’s BYD overtook Tesla as the world’s largest EV company.

Uncertainty remains

It remains to be seen if Samsung can execute, Jeff Koch, an analyst with SemiAnalysis told EE Times. 

“While Tesla’s order volume is an order of magnitude below the true marquee customers like Apple and Qualcomm, they are still a big name and a solid flagship customer,” Koch said. “It’s finally a win for Samsung after more than a year of constant negative news. Tesla can brag about chips being made in the U.S., lowering its risk concentration in TSMC.”

The Tesla-Samsung deal is “groundbreaking,” TechInsights vice chair Dan Hutcheson told EE Times.

“I read this to be a sign of desperation on both sides: Samsung needs to fix its advanced process woes, while Tesla needs access to advanced manufacturing capacity in the U.S.,” Hutcheson said. “TSMC Arizona has been fully booked.

The deal with Samsung addresses this problem while bringing Elon Musk directly into fixing Samsung’s manufacturing issues. Elon is the world’s manufacturing master when it comes to efficiency through breaking the ‘we’ve always done it that way’ arthritic thinking of established production methods.”

The contract, which extends through 2033, will depend on Tesla’s car sales, according to one analyst who requested anonymity. Tesla’s financial performance is “very questionable,” the analyst said.

CHIPS Act

The CHIPS Program Office, responsible for disbursing CHIPS Act subsidies to chipmakers that invest in the U.S., told EE Times last year that winning CHIPS funding depends on manufacturers’ ability to meet production milestones. The $53 billion in the CHIPS Act program aims at reviving the declining U.S. semiconductor industry.

“For the US and its on-shoring ambitions, a customer commitment to the Taylor fab was sorely needed and makes it much more likely the project can succeed or at least continue for now,” Koch said. “Samsung has spent 3+ years struggling with their GAA process, continually rebranding it but not making large improvements. We can call it a turnaround when they are shipping large volumes of the Tesla chip with good yields and reasonable costs.”

Chip designers like Tesla put billions of dollars at stake when they place orders with Samsung or TSMC, which potentially face yield problems with a new process technology like GAA.  

“Most likely Tesla got very favorable terms from Samsung for the AI6,” Koch said. “This is a positive first step, but Samsung is nowhere near TSMC in terms of yield, capacity, and ultimately how many good chips they’ve shipped at advanced nodes.”

Only one credible player, TSMC, is ensconced at the most advanced semiconductor process node, with two recovering former champions, Samsung and Intel, trying to make comebacks, Hutcheson said.

“The Samsung win increases the pressure on Intel at 14A (the company’s latest process node), and also to have common wafer process technology platforms with TSMC at 1.0 nm for mobile and high-performance designs,” said the analyst who commented anonymously.