Tesla CEO Elon Musk announced that the company has signed a $16.5 billion deal with Samsung Electronics to source chips for its next-generation AI6 chip. This move is expected to bolster Samsung’s loss-making contract manufacturing business and potentially re-energize the project that has faced long delays.
The deal is significant for Samsung, as it will help reduce losses at its foundry business, which has struggled to retain key clients. According to Pak Yuak, an analyst at Kiwoom Securities, the deal would help reduce losses at Samsung’s foundry business, which he estimates exceeded 5 trillion won ($3.6 billion) in the first half of the year. The deal will also see Samsung’s new chip factory in Taylor, Texas, produce Tesla’s AI6 chip, with Musk stating that he will personally oversee the project to accelerate progress.
The news of the deal sent Samsung’s shares up as much as 6.8% to their highest level since September last year. Tesla’s shares were up 1.9% in US premarket trading. The deal is seen as a major win for Samsung, which has been struggling to compete with industry leader TSMC, which has a 67% share of the global foundry market.
While no timeline was provided for AI6 chip production, Musk has previously said that next-generation AI5 chips will be produced at the end of 2026, suggesting AI6 would follow. Analysts expect production to start in 2027 or 2028, but Tesla has a history of missing its targets.
Samsung’s foundry business has faced significant challenges, including widening losses and technological difficulties. The deal with Tesla comes as Samsung faces mounting pressure in the race to produce artificial intelligence chips, where it trails rivals such as TSMC and SK Hynix. The company’s foundry business has struggled to retain key clients, with many defecting to TSMC for advanced chips.
Samsung currently holds just 8% of the global foundry market, far behind industry leader TSMC, which has a 67% share. The deal with Tesla is seen as a major opportunity for Samsung to expand its foundry business and increase its market share.
The deal may also have implications for ongoing trade talks between South Korea and the United States. Seoul is seeking US partnerships in chips and shipbuilding amid last-ditch efforts to reach a trade deal to eliminate or reduce potential 25% US tariffs. However, it’s unclear whether the Samsung-Tesla deal is related to these trade talks.
The partnership between Tesla and Samsung could be a strategic win for the electric vehicle giant, potentially boosting investor confidence and stabilizing its stock. However, with Trump’s recent tariffs on imports and concerns over US trade policies, Tesla’s shareholders might still be cautious about the company’s future prospects. As Tesla navigates these challenges, the deal with Samsung could provide some relief, but the company’s long-term success will depend on its ability to adapt to shifting market conditions and regulatory environments.
The deal might also have implications for Tesla’s relationship with the Trump administration, which has been critical of the company’s valuation and business practices. With Trump’s tariffs and trade policies potentially impacting Tesla’s supply chain and manufacturing costs, the partnership with Samsung could help mitigate some of these risks. Nevertheless, Tesla’s shareholders will likely remain vigilant, monitoring the company’s progress and response to the changing business landscape.