Tesla AI 5 Chip Successfully Taped Out. Can Tesla Reverse Its Downward Trend?

There are three primary reasons for this:

1. Declining sales in Tesla's legacy automotive business

Tesla recently released its first-quarter sales results. Data shows that Tesla's global deliveries for the first quarter totaled approximately 358,000 units, significantly lower than the market's median estimate of 372,000 units. This marks the second consecutive quarter that Tesla has missed market expectations.

2. The SpaceX IPO puts pressure on Tesla's stock price

Recent news regarding a potential SpaceX listing has captured public attention, with investor interest in the company and the broader space industry surging. Reports indicate that SpaceX plans to raise $75 billion at a valuation as high as $1.75 trillion, potentially making it the largest IPO in history. This move could cause incremental investment in Elon Musk’s enterprises to be prioritized for SpaceX over Tesla, thereby weakening the support levels for Tesla's stock price.

3. The market is not buying into the narrative of transitioning to the chip and computing power sector

At the 2025 shareholder meeting, Musk proposed the concept of a "Terafab" chip factory. Musk aims to pivot Tesla's growth logic from the battery-and-vehicle narrative to the chip-and-computing-power track—essentially transitioning from a traditional automaker to a hot AI-driven intelligence company. Analysts at Barclays stated directly in a research report that "chips will become the pillar of Tesla's next phase of growth."

However, judging by the stock price, the market does not seem to be buying it. Investors demand concrete data and reports rather than just the "expectations" touted by Musk. Barclays also noted in its report that while the chip capacity narrative could continue to provide momentum for long-term growth, once capital expenditures and free cash flow are considered, the market requires more solid execution details.

AI 5 is Tesla's fifth-generation AI chip, primarily focusing on terrestrial applications including the entire Tesla vehicle lineup, and serves as the core cornerstone of Tesla's terrestrial computing system. Its performance ranks among the industry's elite, with single-chip computing power comparable to Nvidia's Hopper architecture and a dual-chip solution that rivals the Blackwell architecture, offering dual advantages in cost and power consumption.

Furthermore, the AI 5 chip and the AI 6 chip currently under development will serve as the brains for millions of autonomous Robotaxis and the humanoid robot Optimus upon release. The strategy of "one chip for multiple applications" has effectively established a central hub connecting autonomous driving, robotics, and data centers, completing the closed-loop business logic.

Musk has stated that to support the iterative updates of Optimus and FSD software, Tesla's demand for chips will reach a staggering maximum of 200 billion units per year. Even if global foundries expand production according to optimistic projections, their capacity will still fail to meet the requirement.

Secondly, geopolitical de-risking is another factor driving Musk's decision to build a chip factory. It is reported that Tesla's AI5 chips utilize a dual-foundry model with TSMC (TSM) and Samsung, but potential risks in the Taiwan Strait remain an "unresolved" issue. This move is expected to break the over-reliance on the supply chain.

Finally, there is the cost issue arising from the surge in volume demand. Recently, the spike in AI demand has driven up memory chip prices, which in turn has pushed up the prices of various consumer electronics. According to media reports, if the Terafab project goes into production, integrated chip costs could drop by as much as 70%, and the speed of product iteration will increase manifold.

Tesla's cross-sector expansion into chip manufacturing also implies a high-risk, high-investment landscape. With the Terafab project's potential costs reaching tens of billions of dollars, Intel's formal involvement may alleviate some capital pressure, yet the contraction of Tesla's traditional automotive business continues to strain its cash flow.

Overall, however, the AI 5 chip remains positive news for a long-stagnant Tesla; yesterday's stock price surge indicates that the market has reignited "hope" for the company.

Notably, Tesla is scheduled to release its Q1 2026 earnings report after the U.S. market close on April 22, at which point the focus may shift away from the decline in its traditional automotive business. Instead, attention will likely center on the company's "cash cow" fundamentals and its ability to sustain operations until its AI narrative is realized.

Is it worth buying now? The answer depends on the type of investor you are: from an electric vehicle business perspective, even after the stock's decline, its valuation remains high relative to peers; however, from a "computing power-chip" perspective, Tesla is a company betting on frontier technologies like Optimus, Robotaxi, and AI chips, and it still possesses immense potential.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.