Tesla to build an in-house ‘TeraFab’?
Tesla’s existing production network spans the globe.
In early 2026, Tesla CEO Elon Musk surprised investors by saying the company may have to build its own semiconductor factory. On the Q4 2025 earnings call Musk said Tesla “is going to have to build a Tesla TeraFab… a very big fab that includes logic, memory and packaging, domestically” to meet its future demand for chips used in self-driving cars and robots. This bold idea fits Tesla’s history of vertical integration: the company already makes its own batteries, designs its own car hardware and AI chips, and has heavily automated factories.
Tesla’s existing production network spans the globe. Its original factory in Fremont, California became the birthplace of Model S, 3, X and Y production. In 2014 Tesla broke ground on “Gigafactory 1” in Nevada, a huge complex to mass-produce batteries, electric motors and powertrains and now also the Tesla Semi truck. Soon after, Tesla opened Gigafactories in Shanghai, China, Berlin-Brandenburg, Germany and Austin, Texas.
Tesla’s own website reports that today it has capacity for over one million vehicles per year across its plants. In fact, Tesla says it produces “hundreds of thousands of vehicles, millions of batteries and billions of lithium-ion cells annually”. This massive scale comes from combining traditional assembly lines with heavy automation: Tesla notes that “our robots complement the manual precision” of human workers, doing “superhuman tasks like lifting vehicles and aligning parts down to the micron”. Tesla’s factories themselves are highly automated machines – a point Musk often makes by calling them “the machine that builds the machine” In practical terms, Tesla has gone from building a few hundred Roadsters to churning out over a million cars and components per year, which sets the stage for why it now even designs its own chips for those products.
Tesla has pushed the idea of automation not only in cars but in its factories. The company’s goal has been to continuously improve production with short iteration cycle. A Harvard Business School blog notes that Musk “frequently speaks about ‘building the machine that builds the machine,’” meaning Tesla’s factories are meant to be highly automated and optimised
On the product front, Tesla is also building actual robots. Starting around 2021, Musk believes humanoid robots will be Tesla’s next massive business. However, as of early 2026 Optimus remains experimental. Tesla has stated that Optimus is still in R&D and not being used in significant manufacturing roles yet – it’s “only in the factory to learn,” not actually working the line. Meanwhile, Tesla’s immediate focus remains on its vehicle lines and making those autonomous.
In recent years the semiconductor shortage and growing demand for AI chips have put automakers and tech companies on edge. Tesla is no exception. Modern EVs and self-driving systems use vast numbers of chips – processors for battery management, inverters, and especially AI accelerators for Autopilot and robots. Tesla has been designing its own AI chips, but it still needs to have them fabricated by outside foundries. According to a MoneyControl report, Musk has warned that Tesla’s planned products will create an “insatiable” need for chips. He noted that Tesla currently buys chips from Samsung and Taiwan’s TSMC, but these suppliers “are not able to supply Tesla at the levels the company needs” which has created a supply bottleneck: Tesla could be “fundamentally limited by [its] supply chain” unless it changes course. Musk also expressed concern about geopolitical risk – the fact that most advanced chips come from Taiwan or Korea. He warned that many people are “underweighting” how much that might constrain Tesla’s growth. In Musk’s view, building an in-house fab is the only way to avoid a “chip wall” where supply limits volume.
Elon Musk has given a few details about what this “TeraFab” would look like. On the Q4 earnings call he framed it as a “gigantic chip fab” that Tesla must do. He said the goal is to integrate logic chips, memory chips, and packaging all in one factory, so Tesla could control the entire chip-making process domestically. He talked about scale: in a November 2025 shareholders meeting he estimated that a TeraFab might start at ~100,000 wafer starts per month but eventually scale to 1,000,000 wafer starts per month across a large complex.
In context, building an in-house fab is a logical extension of Tesla’s longstanding strategy of vertical integration. The company already makes key components itself: for example, it produces battery cells and packs at its Gigafactories, and it designs its own AI chips for Autopilot. Tesla even makes some car parts in-house rather than buying them. According to commentators, adding a chip fab follows Musk’s pattern. As MoneyControl notes, Tesla building its own foundry “would follow Musk’s track record of vertical integration” seen across his companies
Despite the challenges, Musk’s comments show he believes the payoff is worth it. He and Tesla face fierce competition in the AI and EV arena, and without sufficient chip supply Tesla’s growth could stall. Musk has warned investors that if Tesla does not secure more chips, it may literally “hit the chip wall” and its ambitions in AI and robotics will be constrained. For now, Musk’s proposal is still an idea rather than a concrete project. He has not announced any location or timeline for a TeraFab, only that it is “got to be done.” Some have questioned how feasible this is, given the lead time and cost. But Tesla is no stranger to grand projects: a 2025 report noted Tesla produced about 1.65 million vehicles globally, showing the company can scale rapidly when needed.
Tesla’s mention of an in-house “TeraFab” underscores how far the company’s ambitions have expanded. From its modest beginnings making the Roadster, Tesla has become a major automaker and a tech innovator. Its factories now operate around the clock on multiple continents, using advanced robotics and producing more than a million cars per year. As Tesla enters the era of self-driving cars and humanoid robots, chips are at the heart of its future. If Musk’s plan succeeds, Tesla could one day own a chipmaking plant as large as its Gigafactories. But even if it does not, the proposal illustrates Tesla’s relentless drive for vertical control. As one Tesla document puts it, they know “terawatt-scale production” of energy and vehicles is key to a sustainable future – and they appear willing to tackle even chip manufacturing to achieve it.
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