Tesla‘s Chief Executive Officer Elon Musk unveiled Terafab on Saturday night in Austin, with Texas Governor Greg Abbott in attendance.
The project is a joint venture between Tesla, SpaceX, and xAI — which SpaceX acquired in an all-stock deal in February — targeting 1 terawatt of annual AI compute at 2-nanometer process nodes.
The facility is planned for the North Campus of Giga Texas and would consolidate chip design, lithography, fabrication, memory production, advanced packaging, and testing under one roof.
At full capacity, Tesla claims the output would match roughly 70% of the total global production from Taiwan Semiconductor Manufacturing Co. — the world’s largest contract chipmaker.
“We either build the Terafab or we don’t have the chips, and we need the chips, so we build the Terafab,” Musk said.
He added that existing suppliers including Samsung Electronics Co., TSMC, and Micron Technology Inc. were expanding at a pace “much less than we would like.”
Musk did not provide a construction timeline or production schedule. Tesla has posted job openings under the Terafab name for roles in Austin and Palo Alto.
Barclay’s Take
Barclays warned on Monday that Tesla‘s newly announced Terafab chip factory could require capital expenditure far exceeding the bank’s own bull-case estimate of $50 billion.
Analyst Dan Levy called the spending outlook “likely well more than an order of magnitude higher” than the figures Tesla has communicated so far.
Levy reiterated an Equalweight rating and $360 price target on the stock.
Tesla shares were falling 2.8% in Monday’s pre-market session to $357, extending a decline that has now reached approximately 30% from the all-time high of $498.83 set in late December.
Based on Friday’s closing price of $367.96, the reiterated target implies slight downside.
“What’s clear is that our ‘bull’ CapEx target for Terafab of $50bn+ appears dramatically low vs the aspirations Tesla communicated, and could be many multiples higher, and likely well more than an order of magnitude higher,” Levy wrote in the note.
Bulls ‘Braced’ for the Bill
Despite the staggering cost projections, Levy said Tesla‘s most optimistic investors appear unfazed.
“One of the feedback points we received on our report last week was that Tesla was facing a steep step-up in capex, even beyond the elevated $20bn+ level they already communicated earlier this year,” the analyst wrote.
“Yet it seems that the bulls are braced for this, knowing that you need to spend if you want to win,” he added.
Levy noted he expects Tesla to build the facility in multiple phases, slowly ramping to the stated 1-terawatt target rather than committing the full capital upfront.
He also assumed that both Tesla and SpaceX/xAI will contribute funding to the venture, potentially easing the burden on Tesla‘s balance sheet.
The company led by Elon Musk ended 2025 with $44.1 billion in cash and investments.
Its existing 2026 capital expenditure guidance already exceeds $20 billion — more than double the $8.5 billion spent in 2025.
Barclays has separately forecast Tesla‘s 2026 free cash flow at negative $3 billion even before any Terafab-related spending.
If fab-level investments are layered on, cash flow pressure would multiply significantly, according to the bank’s analysis.
Capital Raising Likelihood
The spending trajectory has raised questions about whether Tesla will need to raise external capital for the first time since December 2020, when it completed the last of three at-the-market offerings that brought in roughly $12 billion in a single year.
Tesla‘s own 10-K annual filing states the company “may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business.”
Full-year 2025 revenue declined 3% to $94.8 billion, with automotive revenue — still the core business — down 10% to $69.5 billion.
Net income fell 46% to $3.79 billion.
In a January note, Barclays said that Tesla stock “is likely to remain frothy” despite the spending risks, noting that shares trade at approximately 200 times the firm’s 2026 earnings estimate.
