Tesla and SpaceX Commit $16.8 Billion to Build World's Largest Chip Plant in Texas

Elon Musk's two companies are building a chip factory bigger than anything on the planet, and Texas taxpayers are helping foot the bill.

Tesla and SpaceX announced Thursday that Terafab, their jointly developed semiconductor fabrication plant, will rise in Grimes County, Texas, just outside Houston. The initial investment is $16.8 billion, according to both TechCrunch and Morningstar. SpaceX says the facility will span more than 100 million square feet, making it the largest and most valuable building on Earth, per Musk's own description in a post on X.

Musk's ambitions here are genuinely massive. Tesla and SpaceX say their combined chip demand will eventually top 1 terawatt of compute per year, according to Morningstar. That's meant to power Optimus robots, Tesla's Cybercab robotaxi fleet, and SpaceX's plan to turn orbiting satellites into data centers for AI training. Current global chip production isn't close to meeting that kind of demand, which is the whole reason Musk wants to build his own supply chain from scratch.

Texas Governor Greg Abbott stood next to the announcement, and for good reason. The state is putting up a $30 million grant through the Texas Enterprise Fund plus tax abatements to lock the project down, according to BigGo Finance. Intel is also involved, providing manufacturing support, though TechCrunch notes Intel has been vague about exactly how much it's contributing.

The initial $16.8 billion is just the opening bid. SpaceX has told regulators it could spend as much as $119 billion on the project across a multi-phase construction plan, according to TechCrunch. That's a staggering number for a single facility, even by the standards of AI infrastructure spending that's swallowed Silicon Valley over the past two years.

Tesla broke ground on a smaller research fab in Texas back in April, which the company now describes as the precursor to the full Terafab build, according to Morningstar. Both companies have deep roots in the state already. SpaceX moved its headquarters to Starbase, Texas from California in 2024, with Musk citing California's political climate as a factor. Tesla has been headquartered in Austin since 2021. SpaceX says its Texas operations have already generated more than $28 billion in economic impact over the past two years.

The jobs number attached to Terafab is 3,000 positions, drawn from Grimes and neighboring Brazos County, according to all three sources. Local school district officials appear on board. Anderson-Shiro Consolidated Independent School District Superintendent Dr. Sarah Borowicz said in a statement released by the governor's office that the agreement will "strengthen our district, expand opportunities, and better prepare our students for their future."

Not everyone in Grimes County is cheering. TechCrunch reported that a county meeting held Wednesday, the day before the announcement, drew hundreds of residents who raised concerns about the size of the tax breaks and a lack of transparency in how the deal came together. When a company promises 3,000 jobs and asks for millions in public incentives, taxpayers deserve to see the actual terms before the ribbon gets cut, not after. Local governments have a long history of underselling the cost of megaproject incentive packages, and residents pushing for more disclosure have legitimate concerns.

Water use is another detail worth watching. SpaceX said it's committing to draw from the local Gibbons Creek Reservoir rather than local groundwater, an apparent effort to head off concerns about straining the region's water table before they start. Whether that commitment holds up once the fab is running at full output, especially with chip fabrication's notoriously heavy water demands, remains to be seen.

One thing all three sources agree on: this is Musk betting that the AI and robotics boom is real and durable enough to justify building his own chip supply chain rather than relying on TSMC, Samsung, or Intel's existing capacity. SpaceX, which is now a publicly traded company after its recent IPO, has not disclosed further financial details about Terafab beyond the figures reported to regulators. Given that SpaceX has already told shareholders its capital spending on AI infrastructure hit $18.4 billion in a single quarter, Terafab's costs will show up in the company's own earnings reports rather than staying tucked away in private filings. Shareholders watching Musk's broader business empire, and taxpayers in Grimes County, are both going to want a clearer accounting of costs before the $16.8 billion turns into anything closer to the rumored $119 billion.