Samsung & Tesla sign $16.5 billion AI chip supply deal
Following the confirmation of the deal, Samsung’s shares rose by 3.5%. While the company has yet to comment on the deal, it should prove a major step towards the commercialisation of logic chips for the company. Its main competitor, TSMC, on the other hand, can barely keep up with orders, currently holding 67.6% of the global chip market, so it will be a welcome addition to the market. Samsung is currently the world’s top memory chip manufacturer, but lags behind the competition on logic chips.
In a later social media post, Musk further explained how the orders will differ: “Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip,” the CEO wrote. TSMC has been tasked with supplying the following generation, the AI5, which will see production launch in Taiwan, and follow in Arizona at a later date.
Tesla is also working hard to establish a stronger foothold in the autonomous driving business, where it is still far behind companies such as Waymo, which is active internationally and has far more testing miles under the hood of its autonomous vehicles. Uber and Baidu have also expanded their autonomous driving service to the Middle East and Asia.
“Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,” Musk wrote on his social media platform. In another post, he further added: “The $16.5B number is just the bare minimum. Actual output is likely to be several times higher.”
Samsung already produces AI chips for Tesla, which are currently in the fourth generation. Taiwanese competitor TSMC will produce fifth-generation AI chips for the US company. According to Musk, these will initially be manufactured in Taiwan and then in Arizona. Tesla uses the AI chips to operate its software for autonomous driving.
It was only in October last year that Samsung had reported delaying its installation of chipmaking equipment in its factory in Texas due to a lack of major customers, delaying the operational start until 2026. This will likely ensure that the new launch date will be kept.
The deal comes just ahead of Samsung’s next earnings call, which is likely to see the manufacturer under pressure to close the gap in logic chips to its competition. According to Reuters, “Samsung projected a 56% drop in second-quarter operating profit, partly due to widening losses of its foundry business,” earlier this month.
Whether the deal will be affected by the ongoing trade disputes between the USA and the world remains unclear. The European Union just settled on a deal for a 15 per cent base tariff with the USA; however, the lack of subsidies in the USA may also affect how and where production will take place.
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