Can Tesla Help Samsung Recover From Losses? Elon Musk Announces $16.5 Billion Deal For 'Next-Generation' Chips

Tesla CEO Elon Musk has announced a $16.5 billion agreement to procure chips from Samsung Electronics. This action is anticipated to strengthen the South Korean technology heavyweight's contract manufacturing business, which has been operating at a loss.

Following the news, there was a surge of over 4 per cent in Samsung's shares.

“Samsung’s giant new Texas fab will be dedicated to making Tesla’s next-generation AI6 chip. The strategic importance of this is hard to overstate,” Musk posted on X on Monday (28 July).

Should Musk's comments pertain to the forthcoming Taylor, Texas, facility of Samsung, it could rekindle the progress of the project that has been stalled due to Samsung's difficulties in maintaining and gaining significant clients.

“Samsung agreed to allow Tesla to assist in maximising manufacturing efficiency. This is a critical point, as I will walk the line personally to accelerate the pace of progress. And the fab is conveniently located not far from my house,” Musk added.

Previously, Samsung disclosed a chip supply agreement worth $16.5 billion without revealing the client's identity, as the client had asked for the specifics of the deal to remain confidential. The agreement is set to last until the end of 2033.

Reuters was informed by three informed sources that Tesla was the client involved in the agreement.

Samsung's agreement arrives amidst intensifying competition in the artificial intelligence chip production sector, where it lags behind competitors like TSMC and SK Hynix. This delay has significantly impacted its earnings and stock value.

Samsung, the leading manufacturer of memory chips globally, also produces logic chips according to customer designs through its foundry business.

Pak Yuak, a Kiwoom Securities analyst, suggested that the recent agreement could mitigate the losses of Samsung's foundry business, which he calculated to have surpassed 5 trillion won ($3.63 billion) in the first half of the year.