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.”
