- TSMC is open to participating in Elon Musk’s Terafab chip project but mandates that any involved fab must be run by TSMC.
- Negotiations are ongoing, but a definitive agreement on operational control has not yet been reached between the parties.
- TSMC’s condition challenges Musk’s initial plans to retain control over Terafab’s manufacturing operations.
TSMC and Terafab: Conditions for Collaboration
TSMC, the world’s largest contract chipmaker, has confirmed its willingness to work with Elon Musk’s Terafab chip project for a new factory in Texas. However, TSMC chairman and chief executive C.C. Wei stated that any fab involved would have to be run by TSMC. This announcement was made during the company’s third-quarter earnings call on Thursday.
Discussions between TSMC and Elon Musk regarding the utilization of Terafab’s capacity are ongoing. Previously, Musk had confirmed negotiations, while TSMC had remained silent. C.C. Wei’s recent remarks clarify TSMC’s stance, emphasizing that operational control is a crucial prerequisite for their involvement.
TSMC’s US Expansion Plans
TSMC is actively exploring options to expand its American production capacity beyond Arizona, with Texas being one of the options under evaluation. TSMC teams have visited Texas to assess potential sites. C.C. Wei articulated that the company has “expanded our capacity consideration to see outside Arizona, whether we can get another chance to expand our capacity.”
The confirmation of talks with “one of our customers, who is trying to build a fab, Terafab, let me be more specific,” underscores TSMC’s interest in Musk’s project, albeit with a clear condition.
Disagreement on Operational Control
The primary point of contention between TSMC and Elon Musk revolves around operational control. Musk initially intended for Terafab to retain control of its manufacturing complex, potentially subleasing a portion of its cleanroom to TSMC. However, TSMC insists on its typical business model, where it operates fabs co-owned with other investors, as seen with its ESMC and JASM facilities.
Dr. Wei clearly stated: “We are still in discussion. If we have any solid conclusion, we will share with you. Either way, it will be possible, but the fab has to be run by TSMC.” This raises the question of whether Musk and TSMC can agree on a mutually satisfactory arrangement. One potential compromise could involve Terafab owning the facility and leasing a portion of it to TSMC, allowing TSMC to independently operate its production lines. This would enable Musk to retain ownership of the entire complex while granting TSMC control over specific manufacturing lines. However, if Terafab itself plans to utilize Intel’s 14A process technology at the facility, TSMC’s presence there would be extremely complicated, if not impossible.
TSMC’s Financial Performance
For the third quarter of 2026, TSMC reported revenue of $46.72 billion, marking a 41.2% year-over-year increase and a 16.2% sequential growth. The foundry’s net income reached approximately $23.9 billion, a 68.7% increase from the same quarter a year earlier, driven by elevated demand for chips used in AI infrastructure. The company’s gross margin stood at 66.4%, a historic record. For the fourth quarter of 2026, TSMC projects revenue between $52.3 billion and $54.3 billion, representing approximately 14% sequential growth at the midpoint, with a projected gross margin between 65% and 67%.
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The progression of negotiations between TSMC and Terafab will determine if Elon Musk is willing to concede operational control, or if TSMC can find a way to participate while upholding its management principles. For the semiconductor industry and US chip manufacturing, this collaboration could be a significant development, but its realization hinges on the parties’ ability to find a mutually agreeable solution on these critical operational aspects.
TSMC’s insistence on operational control for any Terafab involvement is entirely consistent with their established business model and critical for maintaining process integrity. Their co-ownership and operational agreements, like those with Sony for JASM, demonstrate a successful template. The challenge for Musk lies in reconciling his vision of retaining manufacturing control with TSMC’s proprietary fab management, especially if Terafab intends to integrate Intel’s 14A process, which would present significant IP and logistical hurdles.