Samsung Foundry bags $16.5B contract with Tesla

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Samsung Foundry bags $16.5B contract with Tesla

Published: 28 Jul. 2025, 15:22 Updated: 28 Jul. 2025, 18:59

Audio report: written by reporters, read by AI

A foundry factory owned by Samsung Electronics in Taylor, Texas [SAMSUNG ELECTRONICS]

Samsung Electronics has secured a $16.5 billion foundry contract to supply semiconductors to Tesla, marking a major breakthrough after a prolonged drought in advanced process orders.

On Monday, the company announced in a regulatory filing that it had signed a semiconductor foundry contract to manufacture and supply advanced chips using its 2-nanometer process technology from July 2025 through December 2033 with an undisclosed client, though the automaker's CEO, Elon Musk, later took to social media to tout the deal.

The filing said that "in accordance with a request from the counterparty to protect trade secrets, the name of the contract, the counterparty and key terms will be disclosed on the next business day following the confidentiality period" and that "as key details of the contract have been withheld due to the need to maintain business confidentiality, investors are advised to exercise caution and take into consideration the possibility of changes or termination of the contract when making investment decisions."

A screen capture of Elon Musk's post on X shared on July 28. [SCREEN CAPTURE]

While the initial filing didn't specify which firm Samsung struck a deal with, Musk later posted on his platform, X, on Monday that "Samsung's giant new fab will be dedicated to making Tesla's next-generation AI6 chip."

"The strategic importance of this is hard to overstate," he wrote, adding, "Samsung currently makes AI4. TSMC will make AI5, which just finished design, initially in Taiwan and then Arizona."

The contract is the largest single order in Samsung Foundry’s history and the company’s first large-scale business with a Big Tech client using its state-of-the-art 2-nanometer process.

Elon Musk, who owns X, formerly Twitter, Tesla and SpaceX, speaks at the Vivatech fair in Paris on June 16, 2023. [AP/YONHAP]

In the foundry business — manufacturing chips designed by fabless firms — having long-term contracts with major clients is essential, given the upfront investment and operational costs of running fabrication plants. TSMC surged ahead in the early 2010s by winning Apple’s mobile chip orders and cemented its lead in the early 2020s by securing Nvidia’s AI chip production.

Although Samsung Foundry ranks as the world’s second-largest foundry after TSMC, it has struggled to land major external customers. Over the past two years, TSMC’s foundries have seen surging demand and rising prices amid the AI chip boom, while Samsung and U.S. firm Intel have lagged due to concerns about yield and quality.

Consequently, Samsung Foundry has mostly handled internal orders for Galaxy chips, and Intel for its CPUs. Samsung Foundry’s operating losses are estimated to have exceeded 4 trillion won ($2.9 billion) last year.

This deal effectively breaks the bottleneck. Samsung’s underused foundry in Taylor, Texas, which had been delayed due to a lack of orders, is now expected to begin operations.

Samsung Electronics' semiconductor plant in Pyeongtaek, Gyeonggi [SAMSUNG]

Earlier this year, Samsung Electronics revised its foundry strategy to focus on perfecting its 2-nanometer process rather than rushing into 1.4-nanometer production, which has been pushed back by two years. The shift, announced at the Samsung Foundry Forum on July 1, emphasizes securing clients and ensuring stable quality over simply being first to market.

This contract reflects that new approach, and may break the vicious cycle that has plagued the business — no clients mean stalled production, which hinders technical development. Samsung must also avoid following in Intel Foundry’s footsteps.

Despite U.S. government support, including defense contracts, Intel’s lack of technical and service innovation proved fatal. Intel recently posted a quarterly operating loss of over $3.17 billion in its foundry business and has declared that investments will halt without any clients.

The Donald Trump administration’s stance on chips has shifted from that of his predecessor. Unlike the Joe Biden administration, which favored Intel, the current government supports Nvidia’s plan to build AI supercomputers in the United States in collaboration with companies like TSMC and Foxconn.

Samsung Electronics flag at the company's Seocho building in southern Seoul on April 30 [NEWS1]

With Intel faltering in advanced foundry competition, only TSMC’s Arizona plant and Samsung remain capable of producing cutting-edge chips on U.S. soil.

On Sunday, the United States and the European Union agreed to eliminate mutual tariffs on semiconductor equipment, aiming to protect the U.S. chip industry by keeping vital supply chains duty-free.

Also on Sunday, Japan’s minister for economic revitalization, Ryosei Akazawa, said in an NHK interview that if Taiwanese chipmakers use Japanese parts or align their production with Japanese market needs in their U.S. factories, they may qualify for government support.

This has led industry watchers to view the success of Samsung’s Taylor foundry plant as a key turning point for Korean materials, parts and equipment companies seeking to enter the U.S. market.

Samsung Electronics' stock prices soared with the news on Monday. It closed at 70,400 won per share, 6.83 percent or 4,500 won higher than the previous trading day.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY SHIM SEO-HYUN,YI WOO-LIM [[email protected]]