Samsung foundry wins $16.5 bil. chip order from Tesla

Samsung Electronics Executive Chairman Lee Jae-yong, center, poses with Tesla CEO Elon Musk, sixth from left, during the latter's visit to Samsung Electronics' semiconductor lab in Silicon Valley, Calif., May 10, 2023. Courtesy of Samsung Electronics

Samsung Electronics clinched a semiconductor foundry contract worth $16.54 billion (22.76 trillion won) from Tesla, providing timely relief to its struggling chip contract manufacturing business.

In a regulatory filing Monday, the company said it signed the contract for a manufacturing and supply deal with “a global tech company.” The contract started on July 24 and will conclude on Dec. 31, 2033.

The $16.54 billion contract is equivalent to 7.6 percent of Samsung Electronics’ 2024 sales of 300.9 trillion won.

Citing a confidentiality agreement, the company did not disclose the identity of the client or the specifics of the deal, but Tesla CEO Elon Musk confirmed that Samsung will fabricate Tesla’s AI6 chip for its full self-driving (FSD) system.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip,” Musk wrote on X, formerly Twitter. “The strategic importance of this is hard to overstate.”

Musk explained that Samsung currently makes AI4, which has been powering Tesla’s Hardware 4 FSD system since 2023, and TSMC will manufacture the next-generation AI5, which “just finished design.”

Tesla CEO Elon Musk's post on X / Captured from X

The AI5 is known to support complex neural network models, enabling real-time decision-making, multisensor integration and unsupervised driving. It is set to power Tesla vehicles starting this year, and the AI6 is expected to arrive in 2027.

Details of the AI6 remain under wraps, but industry officials believe the chip will use Samsung foundry’s 2-nanometer fabrication process.

Since 2019, Samsung has been fabricating older generations of Tesla FSD chips, but they are now manufactured primarily by TSMC using 4-nanometer or 5-nanometer processes. However, recent reports have suggested that Tesla may return to Samsung as a primary supplier for 2-nanometer chips, as yield rates for the Korean chipmaker’s process continue to improve.

“Samsung agreed to allow Tesla to assist in maximizing manufacturing efficiency,” Musk wrote. “This is a critical point, as I will walk the line personally to accelerate the pace of progress.”

The Tesla CEO added, “The $16.5B number is just the bare minimum. Actual output is likely to be several times higher.”

Samsung Electronics' plant in Pyeongtaek, Gyeonggi Province / Korea Times photo by Ha Sang-yun

So far, analysts have speculated that Samsung’s foundry business is likely to regain its competitiveness, buoyed by new orders from key clients.

In a July 21 report, Kiwoom Securities analyst Pak Yu-ak said, “Samsung foundry is expected to narrow its operating losses in the coming months, backed by key developments such as the adoption of the Exynos 2500 chip in the Galaxy Z Flip 7, the planned mass production of image sensors for the iPhone 18 in 2026 and potential new partnerships with clients like Tesla.”

Samsung will fabricate 2-nanometer chips at its foundry in Taylor, Texas, easing uncertainties surrounding the plant’s operation.

Samsung is currently building the Taylor fab under a plan to invest more than $37 billion by 2030. The Taylor plant was initially scheduled to begin producing 4-nanometer chips by the end of 2024, but the launch has been delayed due to difficulties in securing clients. The company now aims to begin operations next year.

An aerial view shows cars parked at the Tesla Fremont Factory in Fremont, Calif., Feb. 10, 2022. AFP-Yonhap

Along with FSD chips, industry officials speculate that Samsung foundry may also manufacture some of Tesla’s Dojo 2 supercomputer chips, which are designed to train neural networks for FSD. Qualcomm’s advanced chips and Nvidia’s next-generation RTX 60 series graphics cards are also being mentioned as potential additions to the foundry’s order backlog.

The Tesla contract comes as a timely relief for Samsung’s foundry business, which has been posting trillions of won in losses in recent months due to difficulties in improving the yield of its 3-nanometer process and its failure to secure major clients.

Brokerages estimate that Samsung’s foundry and chip-designing System LSI (large-scale integration) divisions posted a combined operating loss of around 2 trillion won for the second quarter of this year.

Against this backdrop, the deal is seen not only as a green light for securing additional clients, but also as a catalyst for accelerating the foundry division’s performance recovery.

Samsung’s top semiconductor executives, including Jun Young-hyun, head of the chip-making Device Solutions division, have reportedly made multiple visits to the United States this year to negotiate with key clients. The company has also focused on strengthening its ties with U.S. customers by hiring a former TSMC executive for the North American market as an executive vice president to lead Samsung’s U.S. foundry business.