Key Takeaways
- Elon Musk agreed last week that Terafab, the AI chip plant Tesla and SpaceX are building in Texas, could cost a trillion dollars or more.
- Tesla’s cash flow can’t cover a bill that size, so its share will have to come from debt, new stock or SpaceX, whether or not Musk hires Jensen Huang, who resigned as Nvidia’s CEO on Thursday.
- Tesla’s free cash flow was $6.2 billion in fiscal 2025, and analysts expect it to turn negative through 2028. Its $45.4 billion of cash and short-term investments is under 5% of the bill.
- Tesla’s 2027 capex guidance, due in late January, will show how much of Terafab’s first phase lands on its books.
Tesla (TSLA) CEO Elon Musk has an answer for anyone who wants him to hire Jensen Huang: “That would be an honor.”
He posted it on X on Wednesday night, replying to Zero Hedge’s “Elon please hire Jensen.” The Wall Street Journal had reported that the board of Nvidia (NVDA) was preparing to push out its longtime CEO, and Huang resigned on Thursday morning.
Musk certainly has work for him. Terafab, the AI chip plant Tesla and SpaceX (SPCX) are building in Texas, aims to make chips at a scale no chipmaker has ever tried, Taiwan Semiconductor (TSM) included.
At the Baron Investment Conference last Friday, Ron Baron put a price on it: “It’s gonna cost a trillion dollars.”
Musk’s response, in a clip played on this week’s episode of Peter Diamandis’s Moonshots podcast? “Probably more than that.”
Tesla can’t pay that on its own. Not even close.
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Thirty times the world’s chips
Musk’s goal is a terawatt of AI chips a year. He thinks the world will make maybe 35 to 45 gigawatts of them next year, so “you need 30 times what current global production will be roughly next year.”
He said the money would be spent in stages: “But we won’t need that money immediately. We’ll be building phases.” Tesla and SpaceX said in August they’d put about $16.8 billion into the first phase, with construction running from December through 2028.
Still, the long-term number keeps growing. On Tesla’s third-quarter call in October, Musk said Terafab would cost tens of billions of dollars through early 2028 and more than $100 billion over the long run. A trillion dollars is more than 15 years of Taiwan Semiconductor’s entire 2026 capital budget of $60 billion to $64 billion.
Tesla’s cash flow is heading the other way
Tesla’s free cash flow was $6.2 billion in fiscal 2025, and analysts expect it to turn negative this year and stay there through 2028:
At fiscal 2025’s pace, a trillion dollars would take about 160 years of free cash flow.
The squeeze comes from spending. Cash from operations has stayed between $13.3 billion and $14.9 billion a year since fiscal 2022, while capex has climbed:
This year, management guides capex to about $20 billion. That’s more than twice fiscal 2025’s $8.5 billion, and more than Tesla’s operations brought in all of last year.
$45 billion only goes so far
Tesla does have a cushion. Its cash and short-term investments have more than doubled since fiscal 2021:
They reached $45.4 billion at Sept. 30, and Tesla also has $30 billion of credit lines it hasn’t touched. Put together, that’s under 8% of a trillion dollars. And spending the pile down costs Tesla more than the cash itself: interest income was $445 million in the third quarter, equal to 62% of its operating income.
SpaceX can carry more of it, at a price
Musk’s two companies will split the bill, and SpaceX is growing faster: its third-quarter revenue jumped 161% to $14.6 billion. But that’s still about half of Tesla’s $28.0 billion, and Musk said on Tesla’s October call that SpaceX’s share of Terafab hasn’t been decided. SpaceX is also already borrowing for its own AI build, with Goldman Sachs selling $40 billion of its GPU debt.
As for Huang, he’d help with the hardest part: designing chips good enough to justify a plant this size. But he’s spent 33 years at Nvidia designing chips and letting Taiwan Semiconductor build them. He’d bring know-how, and no money.
That leaves three ways to cover what Tesla’s cash flow can’t: debt, new shares, or handing more of Terafab to SpaceX. Bottom line: I expect Tesla shareholders to pay for their part of Terafab through borrowing and dilution long before its chips earn anything back.
Of course, Musk says the money won’t be needed all at once, and that his team is looking at ways to make chip production more efficient. Tesla’s 2027 capex guidance, due with its fourth-quarter results in late January, will show how much of the first phase lands on Tesla’s own books.
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Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
