Musk advances the $55 billion Terafab chip project; expectations of Tesla and SpaceX merger rise again.

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Although the merger rumors have not yet materialized, Terafab has already enabled Tesla and SpaceX to merge in the areas of chips, talent, and manufacturing systems.

Elon Musk is forming a semiconductor manufacturing team within Tesla called Terafab. According to the latest report from The Information, the Terafab project is aimed at providing key chip manufacturing capabilities for Tesla and SpaceX’s autonomous driving, humanoid robots, and data centers. At present, the two companies have agreed to initially invest $55 billion together, with total future investments possibly rising to $119 billion.

Terafab is dominated by SpaceX personnel. The core project leader John Federspiel reports to Musk and manages 34 engineers and managers, only a few of whom are from Tesla. The project has also brought in Intel staff, and Musk has stated his company plans to use Intel's manufacturing process to produce chips.

This massive capital expenditure plan comes at a critical time after SpaceX completed its first public offering (IPO). Currently, SpaceX’s stock price has risen about 25% from the IPO price, reaching a market value of around $2.25 trillion. The deep binding of the two companies in terms of funds and technology directly touches investors' sensitive nerves.

SpaceX Executives Lead Chip Project

The composition of the Terafab team highlights SpaceX’s dominant position in the project. The team is led by SpaceX executive John Federspiel, who reports directly to Musk and manages a team of 34 engineers and management staff.

According to his LinkedIn profile, Federspiel is currently serving as the Senior Director of Terafab as well as Senior Director of Product Engineering for SpaceX’s Starlink. Last month, he represented SpaceX at a Terafab factory tax reduction hearing held in Grimes County, Texas.

The project has also gathered several employees with over ten years at SpaceX, including hardware development engineer Michael Ornstein and head of materials engineering Lora Ulmer. SpaceX Senior Director of Health and Safety, John Buffalo, is also on the project list.

Terafab combines Tesla’s experience in designing custom AI hardware and building large-scale manufacturing facilities, with SpaceX’s expertise in developing complex hardware systems.

$55 Billion Startup, Project Serves AI Manufacturing Needs

Terafab is a manufacturing project Musk first announced in March. Tesla and SpaceX agreed to an initial joint investment of $55 billion, with future investment scale possibly reaching $119 billion.

The project aims to build a semiconductor factory to help Tesla and SpaceX obtain materials needed for their AI businesses. These businesses include autonomous vehicles, humanoid robots, and data centers.

The report defines Terafab as a combination of the capabilities of both companies. Tesla provides expertise in custom AI hardware design and large-scale facility construction, SpaceX provides expertise in complex hardware system development.

This is also why the project is important to investors. It is not just a chip project, but it also involves the supply capabilities of both companies’ future AI infrastructure. External concerns include whether Tesla shareholders are funding a project not wholly controlled by Tesla, given SpaceX executives dominate the project leadership.

Introducing Intel Technology and Talent

To compensate for the lack of semiconductor manufacturing experience, the Terafab team is recruiting professionals externally. Intel has joined the project as a partner. Over the past few months, four Intel employees have joined Terafab.

Former Intel plant manager Gary Jiang now serves as Terafab project director at Tesla. Musk previously stated his company plans to "use Intel’s manufacturing process to produce chips."

Among team members reporting to Federspiel, only Gary Jiang and Daner Abdula, chief engineer responsible for epitaxy process, are official Tesla employees. Both executives joined Tesla only in the past few months.

Organizational Overlap Sparks Merger Speculation

Terafab is not the only intersection between the two companies. The Information's analysis of Tesla’s 70 executive structure shows that Tesla and SpaceX already operate as one entity in key areas.

Aside from Musk himself, multiple executives hold positions in both companies. For example, Charlie Kuehmann has led the materials engineering departments of both companies for more than a decade. Tesla's VP of AI Software Ashok Elluswamy and Senior Director of Vehicle Software Silvio Brugada also serve at Musk’s AI company xAI.

Tesla’s internal structure is also undergoing adjustments. In February, VP in charge of infrastructure and information security Raj Jegannathan left, and his responsibilities were then assigned to IT Director Tony Tran, North America Factory Software Director Senthil Velmurugan, and VP Joe Ward.

As SpaceX successfully went public and became one of the world’s most valuable companies, speculation about a merger between the two companies has intensified over the past few months. According to The Information, some employees of both companies have privately discussed that a potential merger "is becoming increasingly reasonable."

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