• Tesla ensures the stability of the supply of chips via the Samsung Foundry Texas facility, with the primary focus on provisions for FSD and AI infrastructure.
• Samsung positions itself as a long-term player in automotive-grade AI silicon, signalling a shift beyond mobile and memory.

This strategic partnership that Tesla is embarking on promises to have long-lasting implications on automotive computing and AI infrastructure, as it represents a significant moment in chip manufacturing: the $16.5 billion agreement with Samsung Electronics. Through the agreement, the duration of wherein is possibly extended to the end of 2033, and Samsung will be able to manufacture for Tesla the next-generation AI processors at the semiconductor foundry now being built in Texas, in Taylor.

It is one of the largest agreements in the industry and is particularly crucial as both companies are undergoing major transitions. For Tesla, this is a strategic bet to get advanced chip manufacturing capacity available for the long term. For Samsung, the contract opens new frontiers in the competitive foundry market dominated by Taiwan’s TSMC.

What We Know About the Deal

On July 28, 2025, Samsung confirmed the agreement, stating that it had secured a contract to provide Tesla with some of the finest chips. While initial reports mentioned 4 nm, insiders have now told us the chips would be made on Samsung’s soon-to-be-launched 2 nm process node. These chips will likely be the playback mechanism for Full Self-Driving (FSD) and AI workloads on the Dojo supercomputer platform – unless under the Optimus robot project.

The chips will be manufactured in the U.S., as part of Samsung’s $17 billion investment in the Taylor, Texas, facility. The fab is planned to complete setting up its production lines in the first half of 2026, with small-volume chip production anticipated in the second half of 2027. The facility enjoys incentives provided under the CHIPS and Science Act, aimed at fostering domestic semiconductor production.

The timing of the deal coincides with the worldwide amplified attention on AI infrastructure, chip supply chain stability, and national semiconductor strategy.

Where Tesla Stands in 2025

Tesla continues to lead in global EV sales, but competition and financial concerns are being felt. In Q2 2025, Tesla delivered 443,956 vehicles – an almost slight increase from the previous quarter. Top-line revenues for H1 2025 came in at $41.8 billion – a 10.6% decline year over year. Automotive revenue was $30.6 billion.

In China, Tesla’s market share dropped to 5.53% in June 2025, down from 6.92% a year earlier, with Chinese prestige brands such as BYD and Xiaomi snapping at its heels. 

Nevertheless, there is no compromise in Tesla’s strategy relating to AI and software-defined vehicles. The FSD Beta is said to be operating in over 420,000 vehicles across North America. Tesla’s Dojo supercomputer program continues to expand, supporting large-scale neural net training for autonomy.

Thus, one can reason that this deal with Samsung for chips is a preemptive move to secure a critical supply line for these AI ambitions, while at the same time limiting the dependence of Tesla on supplier companies like NVIDIA.

How the Deal Helps Tesla

Custom chip building for Tesla permits tailoring hardware for latency, power efficiency, and tight integration with software. Additionally, a direct relationship with the foundry serves as insurance against supply chain disruptions.

With Samsung’s 2nm node expected to underpin the AI6 chip, Tesla is likely aiming to enhance:

• Power efficiency for in-car AI processing
• Heat control for dense real-time computing environments
• Integrated processing for sensor data, including radar and camera feeds

While internal cost benefits are harder to quantify, long-term supply contracts typically stabilise pricing and may lower bill of materials (BoM) costs depending on economies of scale.

What’s in It for Samsung?

For Samsung, this is a significant win. Its foundry business has lagged behind TSMC in both volume and reputation. Partnering with Tesla gives Samsung a prestigious automotive AI customer and solidifies its credibility in advanced nodes beyond mobile and consumer electronics.

Samsung has prior experience with Tesla through supplying components like camera sensors. The chip deal takes that relationship to a strategic tier. At the same time, it also justifies the investment in such a large facility as Taylor, which is among Samsung’s most advanced fabs outside Korea. 

Industry analysts have pegged the global foundry market to grow from a $120 billion size in 2024 to in excess of $200 billion by 2029. On account of the surge in software-defined and autonomous vehicles, automotive chips will likely take on a bigger share of that growth.

Competitive Reactions: Should Other Brands Be Worried?

The Tesla move may be a harbinger of compelling urgency to competitors spanning legacy automakers as well as new entrants. As the auto industry leans further into AI, direct access to custom silicon could become a differentiator.

Here’s where some of Tesla’s competitors stand:

• General Motors continues developing its software platform Ultifi but relies on established suppliers for chips.
• Mercedes-Benz has partnered with NVIDIA for DRIVE Orin chips but has not announced plans for in-house AI silicon.
• BYD is working with domestic chip developers, though no high-profile foundry deals have been confirmed.
• Apple, still uncommitted to automotive, has robust chip design capabilities that could power future mobility efforts.

Tesla is not only setting the bar for performance but also for operational control, which could challenge how competitors approach vertical integration.

The Bigger Picture: AI Infrastructure Meets Mobility

As AI applications expand across industries, compute infrastructure has emerged as a central pillar. Automotive brands can no longer separate vehicle performance from chip performance.

This deal reinforces a message: to scale AI, you need to scale compute, and that means investing in the underlying silicon and manufacturing relationships.

Policymakers reinforce this shift. The CHIPS and Science Act in the U.S., together with the European semiconductor strategies, are set to localise production and secure the critical supply chains. This is exactly what the government’s ambitions stand for, which makes Tesla and Samsung’s partnership even more relevant.

Where Does This Leave Everyone Else?

Smaller automakers and tech firms without the resources to build chips in-house will need new approaches. Options include:

• Co-designing chips with foundries or chip designers
• Locking in long-term supply contracts
• Diversifying supply chains across geographies

Other industries—from medical imaging to defence—may adopt similar models, treating AI hardware as proprietary infrastructure rather than off-the-shelf technology.

What Comes Next

Samsung’s Taylor, Texas, facility will complete its production line setup in the first half of 2026, with initial chip output projected for late 2027. Full-scale deployment in the Tesla vehicles is expected beyond the period, probably after 2027 or early 2028. 

Meanwhile, one would expect that Tesla would continue its usage of the current-generation AI5 chip, produced by TSMC, in its next-generation vehicles launching in 2026.

If the collaboration proves successful, it could lead to:

• Broader Samsung-Tesla hardware cooperation beyond chips
• Similar multi-billion-dollar partnerships across the AI and auto ecosystem
• Intensified competition for fab capacity as AI and mobility sectors converge

Final Thoughts

Tesla’s $16.5 billion chip deal with Samsung is not just a procurement agreement—it’s a long-range strategy to own the building blocks of AI at scale.

For Tesla, it’s about control, customisation, and scaling autonomy. For Samsung, it’s about securing relevance in a next-gen tech supply chain.

For competitors, it’s a sign of where mobility and AI are headed: deeper, faster, and more integrated.