Tesla and Samsung Sign $16.5B AI Chip Supply Deal Says Musk

• Tesla’s $16.5 billion deal with Samsung boosts its foundry business and AI chip production.
• Samsung’s Texas plant will produce Tesla’s AI6 chip, enhancing manufacturing efficiency with Tesla’s help.
• The deal, running through 2033, may ease Samsung’s financial losses and strengthen U.S.-South Korea ties.

Elon Musk, CEO of Tesla, announced a landmark $16.5 billion agreement with Samsung Electronics to supply chips for Tesla’s next-generation AI6 chip, a move set to strengthen Samsung’s struggling foundry business. The deal, revealed via Musk’s post on X, sparked a surge of over 4% in Samsung’s share price.

Musk highlighted the strategic significance of the partnership, stating, “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.”

The collaboration may center on Samsung’s upcoming plant in Taylor, Texas, potentially revitalizing a project that has faced delays due to Samsung’s challenges in securing major clients. Musk emphasized Tesla’s role in enhancing efficiency, noting, “Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency. 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.”

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Samsung has already announced the deal worth $16.5 billion without mentioning Tesla due to client confidentiality, and the contract period will span through the year 2033. Samsung, the world leader in the memory-chip business, has reported huge losses in its foundry business, which makes custom-made logic chips, estimated to be more than 5 trillion won in the first half of the year, according to Pak Yuak, a Kiwoom Securities analyst.

Samsung lags behind competitors like TSMC and SK Hynix in the race to produce advanced AI chips, a gap that has impacted its profits and market share. Samsung has also been losing some of its most important clients to TSMC, which has some of the major market players such as Apple, Nvidia, and Qualcomm. Lee Min-hee, an analyst at BNK Investment & Securities, indicated that Tesla's order is not reliant to Samsung's advanced 2-nanometers technology, being Samsung has a problem with manufacturing yields using the highly advanced processor.

By aligning with Tesla, Samsung aims to bolster its position in the competitive contract manufacturing landscape, despite ongoing technological challenges in advanced chip production.