Tesla and Samsung Sign $16.5 Billion Chip Supply Deal

In a record-breaking deal valued $16.5 billion, Korea’s Samsung Electronics on Monday said that it will be producing A16, Tesla’s next-generation artificial intelligence (AI) chip, under the contract.

While Tesla CEO Elon Musk mad the announcement in a social media post, Samsung reported the deal in a regulatory filing with Korea Exchange (KRX) this morning, which accounted for 7.6% of its projected 2024 sales, running through the end of 2033. Samsung did not disclose the customer’s identity, citing business confidentiality.

In his social media post, Elon Musk said that Samsung’s chip manufacturing facility in Texas will be dedicated to producing his company’s chips. His post on X came shortly after Samsung announced a foundry deal.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip. The strategic importance of this is hard to overstate. Samsung currently makes AI4. TSMC will make AI5, which just finished design, initially in Taiwan and then in Arizona,” he added.

While the disclosed contract marks the largest single-client deal for Samsung’s semiconductor division, the total volume may grow further. In a reply post, Musk stated that the $16.5 billion number is just the bare minimum, indicating that the actual output is likely to be several times higher.

In a separate post, Musk also said that Samsung has agreed to allow Tesla to assist in maximizing manufacturing efficiency, suggesting further collaboration as the project moves forward.

“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,” he averred.

Samsung is currently constructing a $37 billion chip fabrication plant in Taylor, Texas which is scheduled to begin operations in the second half of 2026. This is about an hour’s drive from Austin, where Musk lives. The chip giant reportedly revised its plans to accelerate equipment installation at the Taylor fab, aiming to start mass production in the second half of next year.

Samsung Shares Jump

Backed by the news of the deal, Samsung’s shares closed at $50.79, up 6.83% from the previous trading day. It marked the first time in nearly 10 months that the stock ended above the $50 mark. The deal is expected to provide a much-needed boost for Samsung’s foundry business, which has been logging millions of losses and affecting the tech giant’s overall performance.

In an earnings guidance for the April-June period this year, Samsung reported an operating profit of $3.32 billion, nearly halved from a year earlier.

Analysts estimate the company’s Device Solutions division, which oversees its semiconductor business, generated less than 1 trillion won in operating profit, with the combined foundry and logic chip business predicted to post losses of around 2 trillion won.

Given the nature of the foundry business, where securing clients directly translates into revenue, the Tesla deal marks a significant step for Samsung. The company has been under pressure as the gap with market leader TSMC continues to widen and competition from Chinese players intensifies.