Musk moves forward with the $55 billion Terafab chip project, and expectations of a merger between Tesla and SpaceX heat up again.

The merger rumors have not yet materialized, but Terafab has already enabled Tesla and SpaceX to converge in chips, talent, and manufacturing systems.

Elon Musk is building a semiconductor manufacturing team called Terafab within Tesla. According to the latest report from The Information, the Terafab project aims to provide critical chip manufacturing capabilities for Tesla and SpaceX's autonomous driving, humanoid robots, and data centers. Currently, the two companies have agreed to an initial joint investment of $55 billion, with total future investment potentially rising to $119 billion.

Terafab is predominantly staffed by SpaceX personnel. The project's core lead, John Federspiel, reports to Musk and manages a team of 34 engineers and managers, only a few of whom come from Tesla. The project has also brought in Intel personnel; Musk has stated that his company plans to use Intel's manufacturing processes to produce chips.

This massive capital expenditure plan comes at a critical period following SpaceX's initial public offering (IPO). SpaceX's stock price is currently about 25% higher than its IPO price, with a market capitalization of approximately $2.25 trillion. The deep financial and technological entanglements between the two companies have directly struck a nerve with investors.

SpaceX Executives Lead Chip Project

The composition of the Terafab team highlights SpaceX's dominant role in the project. The team is led by SpaceX executive John Federspiel, who reports directly to Musk and manages a team of 34 engineers and managers.

According to his LinkedIn profile, Federspiel currently serves as Senior Director of Terafab and Senior Director of Product Engineering for SpaceX's Starlink. Last month, he represented SpaceX at a tax abatement hearing for the Terafab factory in Grimes County, Texas.

The project also includes several veteran employees who have worked at SpaceX for over a decade, including hardware development engineer Michael Ornstein and materials engineering lead Lora Ulmer. SpaceX's Senior Director of Employee Health and Safety, John Buffalo, is also listed on the project roster.

Terafab combines Tesla's experience in designing custom AI hardware and building large-scale manufacturing facilities with SpaceX's expertise in developing complex hardware systems.

Starting at $55 Billion, the Project Serves AI Manufacturing Needs

Terafab is a manufacturing project first announced by Musk in March. Tesla and SpaceX have agreed to an initial joint investment of $55 billion, with future investment potentially expanding to $119 billion.

The project aims to build semiconductor factories to help Tesla and SpaceX secure the materials needed for their AI businesses. These businesses include autonomous vehicles, humanoid robots, and data centers.

The report defines Terafab as a combination of the two companies' capabilities. Tesla provides experience in custom AI hardware design and large-scale manufacturing facility construction, while SpaceX provides experience in developing complex hardware systems.

This is also why the project is important to investors. It is not just a chip project; it also involves the supply capabilities of both companies' future AI infrastructure. External concerns include whether Tesla shareholders are funding a project not entirely controlled by Tesla, given that SpaceX executives dominate the project's leadership.

Introducing Intel Technology and Talent

To compensate for the lack of semiconductor manufacturing experience, the Terafab team is recruiting professionals from outside. Intel has joined the project as a partner. In the past few months, four Intel employees have jumped ship to join.

Former Intel factory manager Gary Jiang is now serving as Terafab Project Director at Tesla. Musk previously stated that his company plans to "use Intel's manufacturing processes to produce chips."

Among the team members reporting to Federspiel, only Gary Jiang and Chief Engineer Daner Abdula, who is responsible for the epitaxy process, are official Tesla employees. Both executives joined Tesla just in the past few months.

Organizational Overlap Spurs Merger Speculation

Terafab is not the only intersection between the two companies. An organizational analysis of Tesla's 70 top executives by The Information shows that Tesla and SpaceX already operate as a single entity in key areas.

In addition to Musk himself, several executives hold dual roles at both companies. For example, Charlie Kuehmann has led the materials engineering departments of both companies for over a decade. Tesla's Vice President of AI Software, Ashok Elluswamy, and Senior Director of Vehicle Software, Silvio Brugada, have also taken on roles at Musk's AI company, xAI.

Tesla's internal structure is also undergoing adjustments. In February, Vice President of Infrastructure and Information Security Raj Jegannathan left, and his responsibilities were subsequently assigned to IT Director Tony Tran, North America Plant Software Director Senthil Velmurugan, and Vice President Joe Ward.

With SpaceX successfully going public and becoming one of the world's most valuable companies, market speculation about a merger between the two companies has intensified in recent months. According to The Information, some employees of the two companies have privately discussed that a potential merger "is becoming increasingly plausible."

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