Tesla, Samsung sign $16.5 billion chip supply deal, Elon Musk announces

Deal comes as Samsung faces pressure to catch up in AI chips, trailing TSMC. It also boosts South Korea’s push for US tie-ups in chips, shipbuilding, and averting 25% tariffs.

A Tesla Cybercab is displayed at the Los Angeles Auto Show, in Los Angeles, California | Reuters

Seoul: Tesla CEO Elon Musk said on Monday that the U.S. automaker has signed a deal to source chips from Samsung Electronics, a move expected to bolster the South Korean tech giant’s loss-making contract manufacturing business.

On Saturday, Samsung announced a $16.5 billion chip supply deal with a major global company, without naming the client. It said the customer had requested confidentiality about the details of the deal, which will run through the end of 2033.

Three sources briefed about the matter told Reuters that Tesla was the customer for the deal.

The deal comes as Samsung faces mounting pressure in the race to produce artificial intelligence chips, where it trails rivals such as TSMC and SK Hynix. This lag has weighed heavily on its profits and share price.

Samsung, the world’s top memory chip maker, also makes logic chips designed by customers through its foundry business.

Pak Yuak, an analyst at Kiwoom Securities, said the latest deal would help reduce losses at Samsung’s foundry business, which he estimated exceeded 5 trillion won ($3.63 billion) in the first half of the year.

Analysts say Samsung has struggled with the defection of key clients to TSMC for advanced chips. TSMC counts Apple, Nvidia and Qualcomm among its customers.

The Samsung-Tesla deal is also significant for South Korea, which is seeking U.S. partnerships in chips and shipbuilding amid last-ditch efforts to reach a trade deal to eliminate or reduce potential 25% U.S. tariffs.

It is not clear how the order would affect Samsung’s plan to start production at its new factory in Texas, which has been delayed as it struggles to win major customers.

Samsung is grappling to boost production yields of its latest 2-nanometer technology, and the order is unlikely to involve the cutting-edge tech, Lee Min-hee, an analyst at BNK Investment & Securities, said.

Samsung has been losing market share to TSMC in contract manufacturing, underscoring technological challenges the firm faces in mastering advanced chip manufacturing to attract clients like Apple and Nvidia, analysts said.

This report is auto-generated from Reuters news service. ThePrint holds no responsibility for its content.