Key Highlights

  • SpaceX’s S-1 filing reveals Tesla’s Terafab chip plant is far from finalised—despite Elon Musk’s March announcement.
  • The initial $55bn Investment for Terafab’s Texas Facility could balloon to $119bn, per filings reviewed by Reuters.
  • Tesla (Nasdaq: TSLA) and SpaceX (private) have disclosed no binding agreements on Terafab’s financing or operational structure.
  • Analysts warn of execution risks amid surging capex for AI and automotive chips, threatening both firms’ cash flows.
  • Markets reacted tepidly; SpaceX’s valuation remains opaque, while Tesla’s stock dipped 1.2% on Friday.

A $119bn gamble hangs in the balance

The spectre of unfulfilled promises looms large over Elon Musk’s latest grand design. In March, the billionaire unveiled Terafab—a $25bn (later revised to as much as $119bn) semiconductor fabrication plant in Texas, billed as a joint venture between Tesla (NASDAQ: TSLA) and SpaceX. Yet SpaceX’s confidential filing for its public listing—dubbed an S-1—has exposed gaping holes in the plan’s credibility. The document, reviewed by Reuters, makes no mention of binding agreements with Tesla, nor does it outline the mechanics for splitting costs or output. Analysts at Bernstein now estimate the project’s near-term probability of completion at just 30%, citing Musk’s history of overpromising and underdelivering—from Hyperloop to Twitter’s integration struggles.

The lack of detail is striking given the scale. Reuters reported on May 6th that the initial $55bn outlay—primarily for equipment and construction—could escalate to $119bn if phase two expansions materialise. Such figures dwarf even Intel’s (NASDAQ: INTC) $20bn Arizona fab or TSMC’s (NYSE: TSM) $40bn Arizona plant. Yet unlike those projects, Terafab’s funding model remains a mirage. Musk has suggested raising Capital via Debt, Equity, or strategic partnerships, but no banks or chipmakers have committed. CNBC noted in its May 6th coverage that potential investors are “scratching their heads” over how Tesla—already burning $1.5bn annually on negative free Cash Flow—would shoulder its share.

Tesla’s chip addiction deepens as SpaceX’s ambitions collide

Tesla’s reliance on SpaceX for chips is a Faustian bargain. The electric-car maker has long struggled with semiconductor shortages, from the Model 3’s early bottlenecks to the Cybertruck’s delayed production. Terafab was supposed to solve this by producing AI-specific chips in-house, reducing dependence on Nvidia (NASDAQ: NVDA) and TSMC. Reddit users on r/RealTesla have speculated that Musk is using Terafab as Leverage to merge Tesla and SpaceX, a “shell game” to prop up both firms’ valuations.

The timing is perilous. Tesla’s automotive gross margins have slumped to 11% in Q1 2026, down from 19% a year ago, as price cuts to stimulate Demand eat into profitability. Meanwhile, SpaceX’s Starship programme—itself a cash sinkhole—has seen costs balloon to $5bn annually, per filings. The two firms’ symbiotic relationship is increasingly strained. Tesla needs chips to power its Full Self-Driving (FSD) systems and next-gen robotaxis; SpaceX needs Revenue to fund its Mars ambitions. Yet Terafab’s $119bn price tag could divert capital from both. “This is a distraction,” says Dan Ives, Wedbush analyst. “Musk is spreading himself too thin.”

Financial markets yawn—until they don’t

Public markets have greeted the S-1 filing with cautious scepticism. Tesla’s stock dipped 1.2% on Friday, while SpaceX’s valuation—though private—is estimated at $180bn by recent secondary-market trades. The lack of disclosure has left investors guessing. SpaceX’s S-1 is rumoured to be a placeholder; the company may revise financials before going public later this year. Yet the absence of Terafab specifics underscores a broader trend: Musk’s ventures are increasingly opaque, even as they demand ever-larger infusions of capital. SentinelOne Inc (NYSE: S), another Musk-linked firm, saw its stock surge 1.76% on Friday despite lacklustre Earnings—suggesting investors are still willing to bet on the Musk halo effect, regardless of fundamentals.

The broader semiconductor sector is watching warily. Chipmakers like Intel and GlobalFoundries (NASDAQ: GLFS) have poured billions into US-based fabs to meet AI and automotive demand. Terafab’s potential $119bn outlay—if realised—could distort Supply chains, diverting talent and equipment from more established players. Yet if Musk’s project stalls, as his history suggests, it will leave a $55bn hole in Texas’s infrastructure plans. “The risk isn’t just execution,” says an analyst at UBS. “It’s that Musk’s vision outpaces his ability to fund it.”

Geopolitical stakes and regulatory hurdles

Terafab’s location in Texas is no accident. The state has courted semiconductor firms aggressively, offering tax incentives and relaxed regulations to lure investment away from Asia. Yet the project’s sheer scale—$119bn is nearly 1% of Texas’s annual GDP—raises red flags. Local officials have privately expressed concern about water usage, energy costs, and the strain on grid capacity, given Texas’s recent blackouts. The US CHIPS Act, which provides $52bn in subsidies for domestic chipmaking, excludes facilities deemed “non-commercial,” leaving Terafab’s eligibility murky. The Department of Commerce has not commented on whether the project qualifies for aid.

Abroad, the implications are equally fraught. China, the world’s largest chip producer, has warned that US-based projects like Terafab could trigger retaliatory measures, including export controls on rare earths or advanced machinery. TSMC’s Arizona fab has already faced delays due to US-China tensions; Terafab’s uncertain funding model could exacerbate those risks. Meanwhile, Europe’s Chips Act—aimed at reducing dependence on Asia—might view Terafab as a competitor for scarce EU funds. “Musk’s timing is terrible,” says a Brussels-based policy analyst. “The EU is already struggling to fund its own chip sovereignty projects.”

The road ahead: three possible paths

For Terafab to move from fantasy to reality, Musk must navigate a gauntlet of challenges. Path one—partner funding—seems the most plausible, but no chipmaker or automaker has stepped forward. TSMC and Samsung (KRX: 005930) have their own expansion plans, while Ford (NYSE: F) and GM (NYSE: GM) are investing in their own chip capacity. Path two—government subsidies—is equally uncertain. The CHIPS Act’s $52bn kitty is finite, and Terafab’s $119bn ask dwarfs it. Path three—internal financing—would require Tesla and SpaceX to divert cash from existing projects, a non-starter given Tesla’s negative free cash flow and SpaceX’s Starship overruns.

Analysts at Jefferies suggest Terafab could proceed in stages, with an initial $55bn Phase 1 focused on low-risk, high-Margin chips for automotive and aerospace. Yet even this scaled-back version faces headwinds. TSMC’s 3nm process, which Tesla uses for FSD, is already in short supply; dedicating capacity to Terafab could backfire. Meanwhile, SpaceX’s S-1 filing hints at a “phased IPO,” with Terafab’s risks disclosed only in later amendments. For investors, the message is clear: Musk’s grand visions are increasingly contingent on hype over hard numbers.