Tesla CEO Elon Musk has unveiled an ambitious plan to build what he described as a “gigantic chip fab” — a semiconductor manufacturing facility that could mark the company’s most consequential step yet in its pivot from electric vehicles to artificial intelligence and robotics. Speaking at Tesla’s (NASDAQ: TSLA) annual shareholder meeting on Thursday, Musk also floated the possibility of partnering with Intel (NASDAQ: INTC) to produce Tesla’s next-generation AI chips, a remark that immediately sent Intel shares up 4% in after-hours trading.

The announcement follows Tesla shareholders’ approval of Musk’s $1 trillion compensation package, signaling investor confidence in his drive to transform Tesla into a vertically integrated AI powerhouse — capable not only of designing but also producing its own advanced computing hardware.

Tesla’s Next-Gen AI Ambitions

Tesla is currently developing its fifth-generation AI chip (AI5), which will power its Full Self-Driving (FSD) software and future autonomous robotics platforms. The company already manufactures its fourth-generation chip, used in current Tesla vehicles, but Musk said chip supply remains a critical bottleneck.

“Even when we extrapolate the best-case scenario for chip production from our suppliers, it’s still not enough,” Musk told the crowd. “So I think we may have to do a Tesla terafab — it’s like giga, but way bigger. I can’t see any other way to get to the volume of chips we’re looking for.”

According to Musk, the AI5 chip will enter limited production in 2026, with mass production beginning in 2027. The follow-up AI6 chip, expected around mid-2028, will reportedly double performance while leveraging the same manufacturing base.

Tesla’s AI chip roadmap is critical to its autonomous driving and humanoid robotics strategy, particularly as the company expands beyond cars into robotics, energy, and AI-driven manufacturing. Musk said the forthcoming Tesla chip will be three times more power-efficient and ten times cheaper to produce than Nvidia’s Blackwell chip, which currently dominates the AI market.

“I’m super hardcore on chips right now,” Musk joked. “I have chips on the brain.”

Why Intel Might Fit the Plan

The mention of Intel as a potential collaborator was significant. Intel, which has struggled to regain leadership in the semiconductor sector, recently received a 10% equity investment from the U.S. government under its strategic chipmaking initiative. The company’s foundry arm, Intel Foundry Services (IFS), has been seeking major clients to fill its advanced production lines.

“You know, maybe we’ll do something with Intel,” Musk told shareholders, hinting at early discussions. “We haven’t signed any deal, but it’s probably worth having those talks.”

For Intel, a Tesla partnership could be a critical endorsement of its turnaround efforts. For Tesla, it could mean access to U.S.-based manufacturing capacity — aligning with Musk’s broader push to onshore production and reduce dependency on Asia-based foundries.

Tesla already has partnerships with Taiwan’s TSMC and South Korea’s Samsung for chip fabrication. Still, both suppliers face capacity constraints as global demand for AI silicon surges. A Tesla-Intel collaboration could diversify Tesla’s supply chain and potentially qualify for federal semiconductor subsidies.

Building the “Terafab”

While Musk did not provide a timeline or location for Tesla’s proposed chip factory, he described the vision as monumental in scale — capable of producing at least 100,000 wafer starts per month, a standard measure of output for semiconductor fabs.

Such a facility would place Tesla among the largest chip producers in the world, rivaling industry giants like TSMC and Samsung, whose mega-fabs are central to the global semiconductor supply chain. The initiative would also represent a massive capital expenditure, likely requiring tens of billions of dollars in funding, partnerships, and government incentives.

Analysts say the move underscores Musk’s intent to vertically integrate Tesla’s AI ecosystem, reducing dependency on suppliers and controlling the cost structure of its autonomous driving and robotics programs.

“Tesla is no longer just a car company — it’s rapidly evolving into an AI and compute company,” said Ben Bajarin, CEO of Creative Strategies. “Owning the silicon stack would give Tesla unmatched control over its technology roadmap.”

A Bold Step Into Silicon Supremacy

Musk’s remarks arrive as global demand for AI chips surges, with Nvidia’s dominance prompting tech companies to seek alternatives. For Tesla, the ability to produce its own chips at scale could transform its economics — from EV margins to AI inference costs — while cementing its position as one of the few firms bridging both hardware and intelligence infrastructure.

Still, challenges abound: semiconductor fabrication is among the most capital-intensive and technically complex industries in the world. Even with partnerships, Tesla’s entry into chip manufacturing would test its execution capabilities and financial discipline.

Whether the “Terafab” becomes a reality or remains an ambitious concept, one thing is clear — Musk is steering Tesla deeper into the AI hardware frontier, signaling that the company’s next big product may not be a car or robot, but a chip.