Samsung signs $16.5 bn chip deal with Tesla to supply next-gen AI6 chip

Tesla CEO Elon Musk has announced a multi-billion-dollar chip supply deal with Samsung Electronics, aimed at supporting the development of Tesla's next-generation AI6 chip.

The chips will be manufactured at Samsung’s upcoming fabrication plant in Taylor, Texas, a project that has faced delays due to challenges in retaining major clients.

“Samsung agreed to allow Tesla to assist in maximising 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 said in a post on X on Monday morning.

As part of the agreement, Tesla will work closely with Samsung to enhance production efficiency, with Musk personally overseeing progress. The Texas location, close to Musk’s residence, is seen as strategically beneficial for accelerating development.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip. The strategic importance of this is hard to overstate. Samsung currently makes AI4. TSMC will make AI5, which just finished design, initially in Taiwan and then Arizona,” Musk added.

Earlier today, Samsung Electronics announced a chip supply agreement worth 22.8 trillion won (around $16.51 billion) without disclosing the client’s identity, citing confidentiality at the customer's request. The deal, which runs through the end of 2033, represents 7.6% of Samsung's contract revenue ratio, a significant figure for its foundry operations.

Following the announcement, shares of Samsung Electronics surged by as much as 6% on the exchanges. The agreement is widely expected to provide much-needed momentum to Samsung’s underperforming contract chip manufacturing business, which has been grappling with challenges in securing major clients. The timing of this deal is critical for Samsung, which has been under growing pressure in the race to develop advanced artificial intelligence chips.

The company currently lags behind key competitors like TSMC and SK Hynix in this space, a disadvantage that has been weighing on both its profits and its share price. Samsung, while being the world’s leading producer of memory chips, also operates a foundry business where it fabricates custom-designed logic chips for external clients.

However, the foundry arm has been reportedly incurring losses, partly due to Samsung’s inability to attract enough high-profile customers to fully utilise its manufacturing capabilities.

In contrast, market leader TSMC has continued to widen its lead by producing semiconductors for major technology firms such as Apple, Nvidia, and Qualcomm.

This latest deal could mark a turning point for Samsung. It not only helps reduce financial strain on the foundry business but also signals a potential vote of confidence in the company’s progress toward next-generation semiconductor manufacturing.

Samsung also already reportedly supplies automotive chips to global car manufacturers including Volkswagen and Hyundai.