Elon Musk recently pulled back the curtain on a project of unprecedented scale: the creation of a gigantic semiconductor plant meant to supply both Tesla and SpaceX. After the Gigafactories, the billionaire could usher in the era of 'Terafabs', with a particularly striking shift in scale.

A response to the structural chip shortage

For Musk, the main challenge is no longer chip design, but chip availability. Tesla needs them for its self-driving systems, its future robotaxis and even its humanoid robot Optimus. SpaceX, for its part, wants to support computing infrastructure, including data centers that could potentially be deployed in space.

Faced with this exponential demand, current production capacity, dominated by players such as TSMC, Samsung and Intel, may not be enough. Hence the idea of pushing vertical integration to the limit: producing its own semiconductors.

An industrial project like no other

The Terafab project is built around an initial investment phase estimated at between $20bn and $25bn. The initial goal would be to reach production of 100,000 wafers per month, before ultimately targeting as many as 1 million. At that level, the plant would represent nearly 70% of current global output, a figure that underscores the scale of the ambitions on display.

On the technology front, Musk is aiming straight for the top with chips etched at 2 nanometers, a level of sophistication that only a handful of players can manage today, and even then only in limited fashion.

Another key element of the project is to centralize the entire value chain on a single site. Design, manufacturing, packaging and testing would be brought together in the same place, with the goal of speeding up production cycles, reducing defects and improving iteration speed.

An appealing ambition, but littered with obstacles

On paper, the model is coherent. In reality, it is a formidable challenge. Semiconductor manufacturing is among the most complex industrial processes in the world, requiring decades of expertise and massive investment.

Yet Tesla does not manufacture chips today: the company is currently focused on designing them. The transition to large-scale production therefore represents a major technological leap.

Even if successful, the project's effects are not expected to be felt before the end of the decade. And that is only if execution is flawless, a point on which investors remain cautious.

A track record of big ambitions

That skepticism is explained in part by past precedents. At 'Battery Day' in 2020, Elon Musk promised a rapid ramp-up of 4680 battery production starting in 2022. In practice, volumes took longer to materialize and remained below the initial targets.

Does that mean Terafab should be dismissed? Not necessarily. If Tesla and SpaceX manage to deliver on this vision, the project could meaningfully reshape how the semiconductor industry is organized, by promoting deeper vertical integration.

In the near term, however, the impact should remain limited, particularly in financial markets. Terafab is, above all, a long-term play: a strategic bet on full control of the production chain.