Tesla-Samsung Pact Is More Than a Chip Deal

Tesla’s announcement this week of a US$16.5 billion deal with Samsung to produce next-generation A16 chips at the South Korean electronics giant’s Texas facility has significant ramifications for both companies.

“This is more than a supply deal. It’s a strategic brand decision,” declared Lorenzo Coruzzi, valuation director at Brand Finance, a global brand valuation and strategy consultancy.

“Tesla has come under increasing scrutiny in recent years, from delays in delivering full self-driving to ongoing concerns around leadership,” he told TechNewsWorld. “Partnering with a technically credible and globally respected brand like Samsung helps signal that Tesla is serious about scaling its AI ambitions and delivering on its long-term promises.”

Coruzzi added that the South Korean company also benefits from the deal. “For Samsung, this is a high-profile win that strengthens its position in advanced chipmaking and aligns it with one of the most talked-about players in AI and robotics,” he said.

“There’s also a practical advantage,” he continued. “Samsung’s new Texas facility offers Tesla closer proximity and more flexibility. By comparison, TSMC is facing high demand and operating in a more complex geopolitical landscape, which may make it harder to give Tesla the same level of focus.” Taiwan-based TSMC is the world’s largest semiconductor maker by revenue, earning $69.3 billion in 2023, compared to Samsung’s $58 billion and Intel’s $63 billion.

Coruzzi also noted that Samsung is likely to work more closely with Musk and his team, helping accelerate development. “For both brands, this partnership is about building credibility, gaining more control over their future direction and staying competitive,” he said. “For Tesla especially, it’s a critical enabler of the roadmap it has laid out — and essential to the long-term strength of the brand.”

Musk’s Heart in Texas

This deal is a huge victory on both ends, contended Alex Black, chief marketing officer at EpicVIN, a vehicle history reports provider in North Miami Beach, Fla.

“It’s not just chips with Tesla,” he told TechNewsWorld. “It’s a matter of who owns the stack — hardware, software, energy, and now AI compute.”

“In signing Samsung up to make AI6 chips,” he continued, “Tesla’s no longer sitting around to wait to see what Nvidia or Qualcomm’s going to introduce.”

“And Samsung’s got a gigantic, long-term U.S. customer — just what it needs to be competitive with TSMC,” he said.

He maintained that Samsung’s Texas fabrication facility is attractive to Tesla’s CEO. “Musk clearly likes to stay domestic,” he observed. “He does not want to be beholden to Taiwan risk, and he definitely needs closer integration and faster turnaround. TSMC’s mature, but Musk has probably gotten better terms with Samsung — and more flexibility.”

Black acknowledged there will be challenges working with Samsung. “Samsung’s yields on their chips have been rockier than TSMC’s, and Tesla will be demanding bespoke AI performance,” he said. “So they are going to have to smooth out production quality quickly.”

“Tesla and, by extension, Elon Musk are known to be demanding customers, and in principle, Samsung has agreed to let Tesla engineers take a very ‘hands-on’ approach to the manufacturing process,” explained Edward Sanchez, a senior analyst in the automotive practice at TechInsights, a global technology intelligence company.

“This could potentially result in a culture clash between the two companies,” he told TechNewsWorld.

Important to Samsung

Sanchez also noted that Texas offers both a supply chain and a geopolitical hedge for Tesla. “Although TSMC has foundry operations in Arizona, the majority of its chips still come from Taiwan,” he explained. “In the event of military aggression by mainland China, this protects Tesla from supply chain shock and disruption.”

“Onshoring chip production is also a hedge against the unpredictable global trade environment under [President] Trump’s high-tariff, protectionist policy,” he added.

Samsung’s Taylor, Texas, facility has another advantage for Tesla. It’s only about 35 miles away from Austin, where the automaker has its Gigafactory. “This is a distinct advantage, as with most other automotive OEMs, chips are sourced globally, compiled and integrated by various Tier-1s before ultimately making it to the car,” Sanchez said.

The Tesla deal is an important one for Samsung as it has been struggling to win chip foundry production contracts in recent years, losing a lot of business to TSMC, asserted Sam Abuelsamid, vice president of market research at Telemetry Insights, a Detroit-based transportation research and advisory company.

“Samsung used to build SoCs for Apple, for iPhones and iPads, but that business is exclusively TSMC now, and Google is apparently shifting production of its Tensor chips over to TSMC this year, as well,” he told TechNewsWorld.

“Given the size of this deal, it’s clearly going to be for more than just Tesla vehicles,” he added. “This is almost certainly more for robots, which Musk has hyped at producing in the hundreds of millions, but as with most of his claims, I don’t expect it to pan out.”

Foundry Hopping

Moving chip production from one maker to another and back again is a common technique to distribute chip supply dependency, explained Mike Kappes, founder and CSO of Next Semiconductor Technologies, a company in San Diego focused on semiconductor innovation.

“The same exact chip is impossible to manufacture in two foundries because the design rules are different,” he told TechNewsWorld. “However, it is possible to source the same architecture and software-compliant design, which is what Tesla is doing. This will allow them to avoid dependency on their manufacturer.”

Foundry hopping has its costs, though. “This will cost Tesla engineering time and money to develop specifically for Samsung,” Kappes said. “Samsung processing is also behind TSMC, so the chip will not be as advanced, as power efficient, as it could have been if sourced at TSMC.”

“Elon Musk is looking at the volume of chips increasing over time with an initial commitment apparently worth $16.5 billion,” he continued. “However, as Tesla has bounced their chip development between TSMC and Samsung, I would expect them to continue to drive competition on costs between them.”

Despite its recent difficulties, Tesla is still a major automaker, noted Rob Enderle, president and principal analyst with the Enderle Group, an advisory services firm in Bend, Ore. “All of the car companies watch Tesla and the company still is influential in the market so doing this should open the door for Samsung to other car companies,” he told TechNewsWorld.

“Samsung isn’t as powerful with AI as Nvidia, AMD or Qualcomm, but this could be their way to increase their visibility in this market,” he said, “however, given Tesla’s difficulties with self-driving, they might have been better picking a vendor with a stronger AI reputation, as, should this implementation fail, it would further Tesla’s reputational issues.”

New Kind of Automaker

With the Samsung deal, Tesla will be able to maintain its lead in bringing AI into vehicles. “While legacy automakers are still relying on third-party chips from Nvidia or Mobileye, Tesla is going full-stack — designing, training, and soon even fabricating its own AI silicon,” said Mark N. Vena, president and principal analyst with SmartTech Research in Las Vegas.

“It’s the Apple strategy of the automotive world: control the hardware, software, and data loop to optimize performance and unlock new categories of experience,” he told TechNewsWorld.

“Looking forward, this deal might mark the beginning of a new industrial era — where automakers aren’t just car companies, but also AI chip companies,” he added. “And if Musk is right, AI isn’t a layer on top of mobility. It is the product. Samsung may be supplying the wafers, but Tesla is shaping the narrative — and that’s arguably just as important.”