Elon Musk's Terafab puts the chip sector under pressure
Elon Musk's chip factory Terafab is turning out to be far more expensive than expected. ASML warns of major supply chain shortages.
Published on May 21, 2026
© Terafab
Merien co-founded E52 in 2015 and envisioned AI in journalism, leading to Laio. He writes bold columns on hydrogen and mobility—often with a sharp edge.
Elon Musk's ambitious Terafab project is taking on an increasingly concrete form, but the financial and logistical challenges are enormous. While the market initially assumed an investment of around $25 billion, recent documents show that costs could balloon to as much as $119 billion. As Intel joins as a production partner, ASML CEO Christophe Fouquet warns of the immense pressure this mega-project places on an already overheated global chip supply chain.
The explosive rise in costs
In March 2026, Elon Musk announced the Terafab project as a joint initiative by Tesla, SpaceX, and xAI. Initial estimates for building the factory in Texas ranged between $20 and $25 billion. However, recent official documents from Grimes County paint a very different picture. The costs for just the first construction phase are now estimated at $55 billion. If all planned phases are completed, the total investment could reach as much as $119 billion.
This enormous increase illustrates how complex it is to set up advanced chip manufacturing. Building a state-of-the-art factory requires not only expensive machinery, but also an extremely complex supply infrastructure. Analysts were surprised by these new figures, which completely dwarf earlier estimates. The project has overnight become one of the most expensive industrial undertakings in the world.
Intel as a crucial production partner
To realize these gigantic plans, Musk needs an experienced partner — his own companies have no experience with actually fabricating chips at the nanoscale. In April 2026, chip giant Intel therefore joined as the primary production partner for Terafab. Intel is contributing its advanced 18A process node, a technology using transistors smaller than 2 nanometers, as well as its latest chip-stacking techniques, known as advanced packaging technology.
The Texas factory will cover at least 100 million square feet. The project effectively functions as an extension of Intel's production capacity, with Tesla and SpaceX acting as the primary customers. Through this partnership, Musk does not have to develop a complex manufacturing process from scratch, while Intel gains an enormous, well-capitalized customer that will validate its new 18A technology at scale immediately.
ASML warns of bottlenecks
The scale of the Terafab project is causing serious concern throughout the rest of the chip industry. At the Imec Technology Forum 2026 in Antwerp, ASML CEO Christophe Fouquet expressed doubts about its feasibility. He confirmed having had constructive conversations with Elon Musk about the project, describing him as very serious about his plans, while simultaneously warning of major logistical problems.
According to the CEO, demand for AI chips is currently growing far faster than manufacturers can keep up with. Mega-projects like Terafab are pushing the already strained chip equipment supply chain to its absolute limits. ASML itself recently revised its 2026 revenue outlook upward due to a surge in new orders. Although the Veldhoven-based machine builder is doing everything it can to avoid acting as a brake on growth, capacity remains limited — there are simply not enough high-end lithography systems immediately available to satisfy all parties.
The reality behind the paper plans
Despite the grandiose press releases and billion-dollar estimates, construction of the mega-factory is by no means a certainty. A recent SpaceX stock market filing offered a surprising glimpse into the actual state of affairs. This so-called S-1 registration reveals that the collaboration around Terafab is currently still very non-binding. At present, there is only a general framework among the companies involved, with no firm, binding agreements yet in place regarding the allocation of capital or intellectual property.
This means the billion-dollar investments have not yet been formally committed by the participating parties. In practice, the project is therefore still in a very early and fragile phase. Cautious analysts note that mega-projects of this kind frequently run into delays or are scaled back when economic headwinds pick up. The market will be closely watching the coming months for the first real contracts to actually be signed.
Geopolitical tensions and European autonomy
The scaling up of American chip initiatives also has major geopolitical consequences for Europe. The European Union is attempting, through its own Chips Act, to reduce its dependence on other parts of the world — but the enormous gravitational pull of projects like Terafab threatens to undermine these European plans. Concerns are growing in Europe that key technology companies, such as ASML, are being drawn into the American sphere of influence.
The US government has already invested heavily in domestic chip manufacturers like Intel in recent years. Through the close ties between American politics and private projects like Terafab, the export of critical machines could be further restricted. If the US imposes strict regulations to secure the latest machines for its own projects, less capacity will remain available to European factories. This puts heavy pressure on Europe's ambition to capture twenty percent of global chip production. Europe risks losing control over its own technological crown jewels to American interests.
Looking ahead
The coming years will be crucial in determining the balance of power in the global chip sector. The enormous demand for computing power driven by artificial intelligence, self-driving cars, and robotics continues to fuel the market. Whether the Terafab project succeeds depends largely on the delivery of the most advanced machines.
As the sole supplier of High-NA EUV systems, ASML plays an absolutely pivotal role. If the Dutch company manages to scale up production quickly enough, Musk's dream could become reality. If the supply chain becomes congested, however, it will significantly delay the global development of AI. The battle over scarce machines will further heighten tensions between the United States, Europe, and Asia. What began as an ambitious plan in Texas has now grown into the focal point of the global technological power struggle — and its outcome will determine who holds the reins over the digital infrastructure of the future.