Musk rejects rumors of TSMC takeover of Terafab — Intel reaffirms 14A node deal as Musk floats cleanroom 'sublease'

Intel will remain a part of Elon Musk's Terafab project, Lip-Bu Tan, chief executive of Intel, told reporters on Wednesday. Around the same time, Elon Musk, chief executive of SpaceX, Tesla, and xAI, said that Terafab remains committed to building and operating its fab itself, but proposed to lease a part of the fab to TSMC.

Intel will continue its involvement in Terafab, Lip-Bu Tan told Bloomberg prior to the company's event in Japan that commemorates the company's presence in Japan. Back in April, Intel and Terafab, the semiconductor production venture by SpaceX, Tesla, and xAI, announced that the new chipmaker would use Intel's next-generation 14A fabrication process to make chips. Details of the collaboration are still unknown, but there is a general understanding that Intel will license its manufacturing technology to Terafab, though it is unclear whether it will also help ramp up production using the node.

At around the same time, Elon Musk debunked rumors that his companies would invest in Terafab and then partner with TSMC, which will build and operate the fab. Instead, Elon Musk proposes that TSMC sublease a part of Terafab to make chips for its customers.

"No, we will build and run the fab," Elon Musk wrote in an X post. "Let there be ZERO doubt about that. Maybe TSMC subleases part of the Terafab if they want, but nothing more than that."

Offering TSMC, the world's largest foundry that owns and operates dozens of advanced 300-mm fabs around the world, to 'sublease' a part of Terafab is quite an unusual arrangement for many reasons.

First up, TSMC has its own production facilities as well as aggressive plans for about 10 new fab phases in the coming years, and it hardly needs to sublease any capacity or part of the building or site from a third party.

Secondly, semiconductor fabs are not generic facilities: if Terafab is initially equipped and qualified around Intel's 14A process technology, converting part of the facility for TSMC's A14, A13, or A12 processes that the company will use in the back half of the decade would require different process flows, equipment configurations, materials, automation, qualification, and contamination control. Theoretically, TSMC could install a largely independent production line within the same enormous building, but at that point the arrangement would resemble TSMC building and operating its own fab inside a Musk-controlled site rather than simply renting spare manufacturing capacity.

Thirdly, if Intel licenses 14A technology to Terafab, the agreement would almost certainly contain extensive provisions governing access to Intel IP, process information, equipment configurations, and personnel. Putting TSMC engineers and manufacturing operations inside the same facility could create contractual and IP-isolation issues even if TSMC never directly touches the Intel production line. In fact, IP protection would be extraordinary at Terafab, which will complicate its operation.

Fourthly, if indeed two chipmakers end up in the same fab building, or even in the same campus, responsibility for downtime becomes messy. In the case of a Terafab-owned power distribution system, water plant, chemical system, or cooling installation fails and takes someone's production offline, determining operational responsibility and financial liability for potentially hundreds of millions of dollars of affected wafers would be considerably more complicated than at a site controlled by one company.

Finally, if Terafab can equip enough cleanroom space by the end of the decade to satisfy semiconductor requirements of Tesla, SpaceX, and xAI while still leaving substantial capacity available to TSMC, that would raise questions about whether the project had significantly overbuilt capacity in its initial phases.

Since Musk's statements at X are deliberately vague, it is hard to interpret them. In fact, there might be a conceptual problem with Musk's statement. If TSMC installs its own tools, hires its own employees, brings process technology, and production management, while Terafab just provides land, shell, and infrastructure, calling this a 'sublease' undersells what would be a TSMC fab embedded within the Terafab campus. Alternatively, if Terafab provides the tools and infrastructure and TSMC just operates them, that starts to look much closer to precisely the kind of TSMC operational involvement Musk appears to be denying.

Anyhow, while Intel has confirmed its involvement in the project and Musk wants TSMC to be part of it as well, the latest comments raise more questions than they answer.