Tesla-Samsung $16.5 billion supply deal may spur chipmaker's US contract business

By Heekyong Yang and Hyunjoo Jin

July 28 (Reuters) - Tesla TSLA.O has signed a $16.5 billion deal to source chips from Samsung Electronics 005930.KS, a move that could bolster the South Korean tech giant's unprofitable contract business but is unlikely to help Tesla sell more EVs or roll out robotaxis more quickly.

Tesla CEO Elon Musk said late on Sunday that Samsung's new chip factory in Taylor, Texas would make Tesla's next-generation AI6 chip. This could re-energize Samsung's project, which has faced long delays because the company had trouble retaining and attracting major clients.

Samsung shares on Monday closed up 6.8% on hopes that this deal would help the world's top memory chip maker in the race to produce artificial intelligence chips, where it trails rivals such as TSMC 2330.TW.

With production still years away, the deal is unlikely to help Tesla address immediate challenges, including ongoing declines in its EV sales and efforts to scale its emerging robotaxi service. Tesla shares still rose 4.2% on Monday.

Musk has said that future AI inference chips, including AI6, would be deployed in self-driving vehicles and its Optimus humanoid robots, though he has noted the substantial computing power could enable broader AI applications. Inference chips are used to run AI models and make real-time decisions.

"Samsung agreed to allow Tesla to assist in maximizing 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 said in a post on X on Monday.

"The $16.5B number is just the bare minimum. Actual output is likely to be several times higher," Musk said in another post.

It was unclear whether the deal is related to ongoing trade talks between South Korea and the U.S. Seoul is seeking U.S. partnerships in chips and shipbuilding amid last-ditch efforts to reach a trade deal to eliminate or reduce potential 25% U.S. tariffs.

A South Korean trade ministry official told Reuters he had not heard that the specific deal was part of the trade negotiations.

According to a senior analyst at NH Investment & Securities, Ryu Young-ho, Samsung's Taylor factory "so far had virtually no customers, so this order is quite meaningful," although the deal may represent a small portion of its logic chip revenue annually.

In October, Reuters reported that Samsung had postponed taking deliveries of ASML ASML.AS chipmaking equipment for its Texas factory as it had not yet won any major customers for the project. It has already delayed the plant's operational start to 2026.

PRODUCTION TIMELINE

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. Musk confirmed during Tesla's earnings call last week that AI5 chips would enter "buying production" by the end of next year.

Lee Dong-ju, an analyst at SK Securities, expects production in 2027 or 2028, but Tesla has a history of missing its targets.

Samsung currently makes Tesla's AI4 chips, which power its Full Self-Driving (FSD) driver assistant system, while TSMC is slated to make the AI5, initially in Taiwan and then Arizona, Musk has said.

Samsung, the world's top memory chip maker, also produces logic chips designed by customers through its foundry business. The Texas project is central to Samsung Chairman Jay Y. Lee's strategy to expand beyond its bread-and-butter memory chips into contract chip manufacturing.

It holds just 8% of the global foundry market, far behind TSMC, which has a 67% share, data from market researcher Trendforce show.

Pak Yuak, an analyst at Kiwoom Securities, said 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.

($1 = 1,378.7000 won)