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When TeslaTSLA reports earnings on Wednesday, it will update investors on the myriad businesses bringing in revenue to the company. But investors will also be hoping for an update on one of Tesla's biggest future expenses: the Terafab.
The joint project with Elon Musk's other company, Space Exploration TechnologiesSPCX, known as SpaceX, was announced in March and pitched as an effort to build the largest semiconductor factory in the world. Initial filings already estimate the Terafab could cost up to $119 billion.
Despite some initial progress, the project is still far from being a reality.
"Until Terafab demonstrates competitive yields and volume production, it should be viewed as a highly ambitious supply-chain project rather than an established cost advantage," wrote Bill Birmingham, Managing Director at REX Shares, in an email response.
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The goal of the Terafab is to produce enough AI chips to power Tesla's push into robotaxis, robots and SpaceXAI's development of its models. IntelINTC has already said it will participate on the project, and Musk pitched the idea directly to ASMLASML employees, according to reports.
Making chips in-house would more closely tie Musk's two companies, would further vertically integrate them and reduce their reliance on outside suppliers like NvidiaNVDA, Taiwan Semiconductor Manufacturing CompanyTSM and Samsung.
"This vertically integrates Tesla's AI-chip supply but also concentrates Musk-entity execution risk," Birmingham wrote. "This also raises questions around ownership interests, allocations, transfer-pricing, and IP rights across the entities."
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Terafab Isn't The Only Tesla-SpaceX Project
The Terafab isn't the only major construction project the two companies have in the works. Musk has also laid out plans for Tesla and SpaceX to collaborate on a large solar-cell manufacturing plant, dubbed the solar fab.
Those predicting an eventual merger between Tesla and SpaceX point to the Terafab and the solar fab as evidence that a tie-up will happen. Believers in a future Tesla-SpaceX merger argue the costs of the Terafab and solar fab couldn't be borne by a single company alone.
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"We believe Elon Musk's call for a 100 GW U.S./galactic solar fab & 'TeraFab' are direct implications of a Musk Inc. entity (SpaceX/xAI & Tesla)," BNP Paribas analyst James Picariello wrote in research note back in March.
Without including either the solar fab or the Terafab, Tesla already plans to spend about $25 billion in capex this year. In the first quarter, spending was in line with previous quarters but Wall Street expects Tesla to report a step change on Wednesday.
Tesla, SpaceX Stock
Tesla stock added 2.5% Tuesday, after falling almost 3% a day earlier, according to MarketSurge. Shares fell 6.6% last week.
SpaceX stock bounced 3% Tuesday, ending a seven-session losing streak. Shares remained have traded below their IPO price of 135 apiece since Thursday.
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SpaceX IPO Filing Shows There Is No Finalized Terafab Deal With Tesla, Intel