Wedbush Securities said Tesla‘s Terafab chip factory announcement represents the beginning of a path that will culminate in a merger between the company and SpaceX, predicting the combination will take place “likely in 2027.”
Analyst Daniel Ives, one of Wall Street’s most vocal Tesla bulls, reiterated an Outperform rating and $600 price target on the stock in a note published Tuesday.
Based on Monday’s close at $380.85, the target implies approximately 57.5% upside.
“We also believe this is the first step to ultimately what will be Tesla and SpaceX combining forces in a merger likely in 2027,” Ives wrote.
The call escalates a thesis Wedbush has been building for months.
In a February note following the SpaceX-xAI all-stock merger, Ives wrote there was a “growing chance that Tesla will eventually be merged in some form into SpaceX/xAI over time,” predicting the combination could occur “over the next 12 to 18 months.”
Tesla shares closed at $380.85 on Monday — one of the most volatile sessions of the year as contradictory signals on the Iran conflict whipsawed markets.
As of press time, the stock was trading 0.8% higher at $384.12.
What Wedbush Sees in Terafab
Ives framed the $20–25 billion chip factory as the connective tissue between Musk’s companies rather than a standalone Tesla project.
“Elon Musk announced that SpaceX and Tesla will build two advanced chip factories in Austin, Texas with the company focused on building a Terafab facility to keep up with necessary demand for chip technology powering TSLA’s AI strategy,” Ives wrote.
He described the project as a two-track operation.
“One factory will be focused on powering Tesla‘s cars and Optimus humanoid robots with the other being designed for AI data centers in space,” the analyst wrote, noting that Musk aims to generate 1 terawatt of capacity annually — roughly double current US production — because “current suppliers, including Micron, TSMC, and Samsung, are unable to meet future demand.”
“While the timeline for this project is uncertain, this will accelerate the company’s ambitious AI path which we believe will set the foundation for TSLA to become an AI powerhouse over the coming years with chip and memory supply expected to be the greatest constraint,” Ives added.
What Musk Actually Announced
Tesla CEO Elon Musk unveiled Terafab on Saturday night at Austin’s defunct Seaholm Power Plant, 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.
The facility would consolidate chip design, lithography, fabrication, memory production, advanced packaging, and testing under one roof — a vertical integration model no semiconductor company has attempted at this scale.
At full capacity, Tesla claims the output would match roughly 70% of TSMC’s entire current global production.
Initial targets call for 100,000 wafer starts per month, scaling to one million at full capacity. Musk said the facility would produce between 100 and 200 billion custom AI and memory chips per year at 2-nanometer process nodes.
Two chip families are planned.
The AI5 is a terrestrial inference processor for Tesla‘s Full Self-Driving system, Cybercab robotaxi, and Optimus humanoid robots — delivering what Tesla claims is a 50x total improvement over the current AI4 chip.
The D3 is a radiation-hardened chip designed for SpaceX’s orbital AI satellite constellation.
Musk said 80% of Terafab’s compute output would be directed toward space-based applications, with 20% for terrestrial use.
“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 acknowledged existing suppliers — Samsung, TSMC, and Micron — but said “there’s a maximum rate at which they’re comfortable expanding. That rate is much less than we’d like.”
Tesla‘s CFO confirmed at the event that the estimated $20–25 billion cost is not yet incorporated into the company’s existing 2026 capital expenditure plan, which already exceeds $20 billion.
No construction timeline or production schedule was provided.
Small-batch production of the AI5 chip is expected in late 2026, with volume production projected for 2027 — though Tesla had already delayed the AI5 to mid-2027 before the Terafab announcement.
The Merger Thesis
The prospect of a Tesla-SpaceX combination has gained traction in recent months following the SpaceX-xAI merger in February, which created one of the world’s largest private technology companies.
A merger would also significantly increase Musk’s stake in the combined entity. He owns a much larger share of SpaceX than of Tesla, and a stock-for-stock deal would convert that ownership into additional Tesla shares — consolidating his control over the combined company.
Barclays Sees It Differently
While Wedbush sees Terafab as a strategic accelerant, Barclays struck a more cautious tone.
Analyst Dan Levy warned on Monday that the project could require spending “many multiples” above his own $50 billion bull-case estimate, calling the capital outlook “likely well more than an order of magnitude higher” than Tesla has communicated.
Levy reiterated an Equalweight rating and $360 target.
He noted that Barclays forecasts Tesla‘s 2026 free cash flow at negative $3 billion before any Terafab spending and said the company would need to construct the facility in phases with shared SpaceX/xAI funding.
Electrek drew comparisons to Tesla’s 2020 Battery Day, where the company projected 3 terawatt-hours of annual cell production by 2030 — a target it has reached roughly 2% of five years later.
Tesla‘s Dojo supercomputer project, announced in 2021, was disbanded in August 2025 after Musk called it “an evolutionary dead end,” before being revived in January 2026 as an orbital compute concept tied to SpaceX.
