SpaceX and Tesla are launching the megaproject Terafab: $16.8 billion for chips for robots and space.
On August 6, it became known that the joint venture between SpaceX and Tesla for chip production — Terafab — will be located in Grimes County, Texas. Initial investments in the project will amount to $16.8 billion, and the facility itself, according to Elon Musk, will become "the largest and most valuable building on Earth."
The production complex will cover an area of 9.3 million square meters. A single building will combine semiconductor manufacturing, packaging, and testing. The plant will provide at least 3,000 jobs for residents of Grimes and Brazos counties, giving the region a significant economic boost.
Two Product Lines
Terafab will produce two categories of chips. The first includes solutions for edge computing and inference, designed for Tesla Optimus robots and Cybercab robotaxis. The second consists of high-performance processors for SpaceX orbital data centers, opening new horizons for space infrastructure.
The site is located near Gibbons Creek Reservoir, which was previously used to cool a coal-fired power plant closed in 2018. The company has committed to using only this reservoir, without affecting the region's underground water sources.
Legal Structure and Ambitions
In the SpaceX IPO prospectus, the project is described as a "general framework" without binding agreements between the parties. The distribution of intellectual property rights is not fixed, leaving room for flexibility but also creating uncertainty for investors. Intel also announced its participation in April, although specific commitments have not been disclosed.
Initially, Musk cited a figure of $25 billion, but the current $16.8 billion is only the first phase. Earlier, SpaceX acknowledged that total costs could reach $119 billion. This aligns with the company's sharp rise in capital expenditures: in the second quarter, they grew sixfold year-over-year to $18.37 billion, of which $15.83 billion went to the AI segment. Musk forecasts increasing own capacity to 10 GW by the end of 2027.
Tax Breaks and Public Tension
The project was accompanied by complex negotiations over tax concessions. Grimes County approved a full property tax exemption until 2036 in exchange for fixed payments: $10 million upfront and $20 million annually. The school portion of the benefits, approved by the governor in July, became a point of contention after documents were published revealing a discrepancy between the stated $55 billion in investments and the $5 billion committed by 2030.
Residents expressed concerns about the strain on the power grid and water consumption. The company responded with commitments to build its own gas-fired power plants and operate on a closed-loop water cycle. Initial earthworks will begin shortly.
My analysis: Terafab is not just a plant but a strategic step toward vertical integration in an industry critical to AI. However, the "general framework" legal structure and reliance on tax breaks create risks worth monitoring closely. If the project is fully realized, it could fundamentally reshape the balance of power in the semiconductor industry.