Samsung Just Landed a $16.5B Deal to Build Tesla’s New A16 Chips

【PCauto】Tesla has signed a massive $16.5 billion chip deal with Samsung Electronics. Under the agreement, Samsung will manufacture Tesla’s next-gen A16 chips, with production expected to run through the end of 2033.

Elon Musk Confirms Samsung Deal for Next-Gen Tesla Chips

Samsung mentioned the long-term chip manufacturing deal in a recent regulatory filing, though it didn’t name the buyer. Shortly after, Tesla CEO Elon Musk confirmed on X that the company is behind the order. He said Samsung’s new plant in Taylor, Texas will focus on producing Tesla’s next-generation A16 chips. Musk called the deal a major strategic move and added that the $16.5 billion figure only covers the base level of production. The final output, he said, could end up being much higher.

Where Tesla’s New A16 Chip Will Be Used

Tesla’s A16 chip will be built using Samsung’s most advanced process technologies. It will start on 5nm and 4nm nodes, then move to 3nm GAA (Gate-All-Around), and eventually shift to a 2nm process. Production will take place at Samsung’s new $37 billion fab in Taylor, Texas, which is expected to begin operations in the second half of 2026.

Elon Musk noted that the plant is close to where he lives, and said he plans to be personally involved in fine-tuning the production process.

These chips will power three of Tesla’s most critical systems:

The Full Self-Driving (FSD) platform, built on next-gen HW5.0 hardware

The Dojo supercomputer, which handles AI training

Tesla’s in-car infotainment system, helping improve speed and responsiveness

This $16.5 Billion Deal Could Turn Things Around for Samsung’s Taylor Plant

The $16.5 billion contract represents 7.6% of Samsung’s projected sales for 2024. It is also the largest single order Samsung has ever received in its chip manufacturing business. The deal is expected to bring in around $1.8 billion in revenue each year, which may help ease the company’s ongoing losses in the foundry division.

Samsung’s chip plant in Taylor, Texas, had faced multiple delays in the past due to a lack of orders. This agreement finally brings in a key customer from the U.S. market. Although Samsung is a leader in memory chips, its contract chipmaking business holds only 8% of the global market. TSMC, by comparison, commands a 67% share.

For Tesla, the deal offers several strategic benefits. By adding Samsung as a second chip supplier, Tesla gains more flexibility in its supply chain and reduces its dependence on TSMC.

At present, Samsung is responsible for producing Tesla’s A14 chip. TSMC manufactures the A15, which is currently made in Taiwan and will later shift to the company’s factory in Arizona.

Samsung’s advanced packaging technology can also help lower chip power consumption. This will be crucial for future Tesla products, including its Robotaxi service and Optimus humanoid robot.

Samsung Electronics Stock Surges After Deal Announcement

The market reacted strongly to the news, with Samsung Electronics’ shares jumping 6.8%. This marks their biggest gain since September last year. Tesla’s stock also rose 1.9% in pre-market trading. Experts say if the partnership goes well, Samsung could land more chip manufacturing orders from major tech companies. Tesla may also use more Samsung chips in future vehicles like the Cybertruck and Model 2.

With the U.S. CHIPS Act pushing forward, Samsung, TSMC, and Intel are all expanding their wafer fabs in the U.S. This deal highlights the growing trend of bringing semiconductor production back to America. It could also reshape how automotive chips are supplied worldwide.

While this agreement holds major long-term significance for both Samsung and Tesla’s technology plans, it will not solve Tesla’s immediate challenge of slowing electric vehicle sales.