Tesla Signs IDR 267 Trillion Chip Supply Agreement With Samsung

JAKARTA Tesla CEO Elon Musk announced on Monday July 28 that his company had signed a $16.5 billion deal with Samsung Electronics to supply chips, which will be manufactured at Samsung's new plant in Taylor, Texas. This move is seen as a huge boost to Samsung's losing contract chip manufacturing business.

This announcement immediately impacted the stock market, where Samsung shares jumped 6.8% to their highest level since September last year. Meanwhile, Tesla shares also rose 1.9% in pre-US stock trading.

In a statement on platform X, Musk said that the Samsung chip factory in Texas will produce Tesla's latest generation chip, namely AI6, which is aimed at future autonomous vehicle technology.

Samsung agreed to let Tesla help maximize production efficiency. This is very important. I will oversee directly to accelerate progress. This factory is also close to my home," Musk wrote.

He also added that the USD 16.5 billion figure was only the minimum amount of the deal. "The actual production is likely to be several times larger," he added.

According to Ryu Young-ho, senior analyst at NH Investment & Securities, this deal is an important turning point for Taylor factories who have struggled to get big customers.

"The factory has barely had any customers so far, so this order means a lot," he said.

Last year, Samsung even delayed the delivery of advanced equipment from ASML to a Texas factory because it had not yet received a large client. Factory operations have been postponed until 2026.

It is not yet known whether the deal is directly linked to trade talks between South Korea and the United States, which has recently intensely discussed cooperation in chip and shipyard areas to avoid a 25% tariff from the US.

An official from South Korea's Ministry of Commerce told Reuters he had not heard whether the deal was part of the trade negotiations.

Although there is no definite timeline, Musk previously mentioned that the previous generation of AI5 chips will begin production by the end of 2026. Thus, the AI6 chip is likely to be produced in 2027 or 2028.

According to Lee Dong-ju from SK Securities, although the AI6 chip production target in 2027 or 2028 sounds realistic, Tesla is known to often miss its production deadline.

Samsung is currently known to have produced the AI4 chip for Tesla which is used in the Full Self-Driving (FSD) driving assistance system. Meanwhile, the AI5 chip will be produced by TSMC, starting from their facilities in Taiwan and then in Arizona.

Samsung, the world's largest memory chip manufacturer, has also run a business foundry or production of logic chips based on client designs. The factory project in Texas is part of a major Samsung Chair strategy, Jay Y. Lee, to expand its business beyond memory chips.

However, Samsung controls only about 8% of the global market share of the foundation, far behind the TSMC which controls 67% according to Trendforce data.

Samsung had previously announced a USD 16.5 billion contract for chip supply without naming clients, due to a request for confidentiality from the customer. However, three Reuters sources confirmed that the client in the deal was Tesla.

This deal is a breath of fresh air for Samsung's struggling foundation business. The company even expects the second quarter's operating profit to drop to 56%, largely due to losses in the foundry business.

Pak Yuak, analyst at Kiwoom Securities, estimates that Samsung's business loss will reach more than 5 trillion won (around Rp65 trillion) in the first half of this year.

"The agreement with Tesla will help reduce the burden of the loss," said Sir.

Analysts say Samsung has been struggling to keep key clients, most of whom have switched to TSMC for more advanced chip technology. This shows the huge challenges Samsung faces in catching up with its competitors.

In comparison, TSMC is currently a chip production partner for Apple, Nvidia, and Qualcomm tech giants who have high demand for new generation chips.