Following the news, Samsung's shares surged by as much as 6.8%, reaching their highest point since September of last year. Tesla shares also saw a positive movement, climbing 1.9% in U.S. premarket trading.
Musk confirmed that Samsung's new chip factory in Taylor, Texas, will be dedicated to producing Tesla's upcoming AI6 chip. This development could re-energize the Taylor project, which has faced considerable delays and challenges in securing major clients.
"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 stated in a post on X. He further emphasized the deal's potential, adding, "The $16.5B number is just the bare minimum. Actual output is likely to be several times higher."
According to Ryu Young-ho, a senior analyst at NH Investment & Securities, Samsung's Taylor fab "so far had virtually no customers, so this order is quite meaningful." Reuters previously reported in October that Samsung had postponed deliveries of ASML chipmaking equipment for the Texas factory due to a lack of major customers, pushing the plant's operational start to 2026.
Production Timeline and Chip Strategy
While no specific timeline was provided for the AI6 chip production, Musk has previously indicated that Tesla's next-generation AI5 chips will be produced by the end of 2026. This suggests that the AI6 would follow thereafter, with analyst Lee Dong-ju of SK Securities anticipating production in 2027 or 2028, though acknowledging Tesla's history of missing targets.
Currently, Samsung manufactures Tesla’s AI4 chips, which power its Full Self-Driving driver assistance system. Musk has stated that TSMC is slated to produce the AI5, initially in Taiwan and then Arizona.
This deal is crucial for Samsung, the world's leading memory chip maker, as it seeks to expand its foundry business – producing logic chips designed by customers – a key part of Chairman Jay Y. Lee's strategy. Despite its ambitions, Samsung holds a relatively small share of the global foundry market. Trendforce data indicates that Samsung commands just 8% of the market, significantly trailing industry leader TSMC, which holds a dominant 67% share.
Samsung had earlier announced the $16.5 billion chip supply deal without disclosing the client's name, citing confidentiality requests. However, three sources briefed on the matter confirmed to Reuters that Tesla was indeed the unnamed customer for this eight-year agreement, set to run through the end of 2033.
Impact on Samsung's Foundry Business and Broader Chip Race
The agreement with Tesla comes at a critical time for Samsung. The company, which is scheduled to report its earnings on Thursday, July 31, 2025, faces increasing pressure in the highly competitive artificial intelligence chip market, where it lags behind rivals like TSMC and SK Hynix. This lag has impacted both its profitability and share price.
Earlier this month, Samsung projected a 56% drop in its second-quarter operating profit, partly attributing this to widening losses within its foundry business. Pak Yuak, an analyst at Kiwoom Securities, estimates that Samsung's foundry business losses exceeded 5 trillion won (approximately $3.6 billion USD) in the first half of the year. He believes this deal will help mitigate those losses.
Analysts note that Samsung has struggled to retain key clients, with many opting for TSMC for advanced chips due to technological challenges faced by Samsung in this capital-intensive industry. TSMC's customer roster includes major players like Apple, Nvidia, and Qualcomm.
The broader implications of the Samsung-Tesla deal, particularly its potential connection to ongoing trade talks between South Korea and the United States, remain to be seen. Seoul is actively seeking U.S. partnerships in critical sectors like chips and shipbuilding amidst efforts to avoid potential 25% U.S. tariffs.