Tesla and SpaceX have confirmed Grimes County, Texas, as the construction site for the semiconductor mega-factory Terafab. The location is about 1 hour northwest of Houston.

On Aug. 6 (local time), overseas media including electric vehicle outlet Electrek reported the two companies put Terafab’s first-phase investment at about $16.8 billion. When completed, the site is expected to exceed 100 million square feet, or about 9.29 million square metres. The companies described Terafab as the largest chip manufacturing facility on Earth.

Elon Musk called Terafab "by far the most valuable building on Earth". SpaceX released an aerial rendering and panoramic images showing 4 huge rectangular buildings and roads linking them, and said the design could change.

Terafab’s core is large-scale vertical integration. SpaceX said Terafab is designed to integrate logic, memory, packaging and testing in one place. The chips produced are set to be used in Tesla’s Optimus robot and Cybercab, and in space-based data centres SpaceX is pursuing. Tesla said both Tesla and SpaceX need far more chips than current and future global production can supply, and set a target of producing more than 1 terawatt of computing annually.

SpaceX envisions securing a stable chip supply chain by moving away from a structure in which semiconductor production is concentrated in some East Asian companies. Tesla and SpaceX will jointly fund the first phase, and total investment could rise during expansion. Employment is set at at least 3,000, with plans to hire most locally.

The project also addresses water use, a local community concern. Terafab is set to be built at the Gibbons Creek Reservoir, which was used to cool a coal-fired power plant that closed in 2018, and SpaceX plans to use reservoir water instead of local groundwater. Residents are also pushing back. About 900 Grimes County residents signed a petition calling for stronger community oversight of large AI infrastructure projects. SpaceX agreed to pay the county $20 million annually, and SpaceX lawyer Bucky Brannen (벅키 브래넌) said the amount is about 78 percent of what it would pay in property taxes.

At a community briefing on Aug. 5, Riley Trettel (라일리 트레텔), head of Terafab development, said SpaceX plans to begin the project almost immediately. Jordan Buss (조던 버스), SpaceX’s senior director for environment, health, safety and medical, called Terafab essential to U.S. competition in AI and said, "This is strategically very important to the United States, and furthermore to Western civilisation."

Questions remain over the scale of the project and how firm the investment plans are. Musk first disclosed the project in March with an investment figure of $25 billion, but the companies now present $16.8 billion as the first-phase investment. SpaceX said in a May initial public offering filing that it described Terafab as a "general framework" without binding commitments, that intellectual property allocation is not finalised, and that neither side is obligated to continue participating in the project. There was also earlier speculation that Intel could handle manufacturing without Tesla building the factory itself.

Terafab is far from a facility aimed at solving Tesla’s chip shortage in the short term. Samsung Electronics’ Taylor, Texas plant has already begun producing Tesla’s AI5 chip, and Tesla last year also signed a $16.5 billion contract with Samsung Electronics to produce the next-generation AI6 chip. TSMC will handle the remaining volume. Terafab is closer to an investment based on Musk’s outlook that Tesla and SpaceX’s long-term computing demand will exceed total output of the entire semiconductor industry.

The scale is also unprecedented. Terafab’s planned area of 100 million square feet is more than 10 times the floor area of TSMC’s largest gigafab. TSMC plans to invest about $165 billion to build 6 factories in Arizona, but even combined they fall far short of Terafab’s stated area. No plant yet targets annual computing production on the scale of 1 terawatt.

Electrek said site selection, permitting and community briefings have made the Terafab plan more concrete than when it was announced in March, but it pointed to a gap between what has been announced and the business plan presented to investors. In particular, how much of the $16.8 billion first-phase investment and any additional future investment will be reflected in Tesla’s financial statements is seen as an important variable for shareholders.

Terafab will be built in Grimes County, Texas In April, we broke ground on our research fab on the North Campus of Giga Texas – the precursor to Terafab. Both Tesla & SpaceX will need far more chips than current & future global production can supply. This is why we're building… pic.twitter.com/je4jKXuQrY