On August 6, SpaceX and Tesla announced their plans to build a chip manufacturing facility named Terafab in Grimes County, Texas, with initial investments totaling $16.8 billion. Elon Musk, the CEO of both companies, shared the news.
Terafab Texas will be the largest and most valuable building on Earth by far.
— Elon Musk (@elonmusk) August 6, 2026
And it will be stunningly beautiful. pic.twitter.com/4NweOqTL7y
The facility will cover an area of 9.3 million square meters, integrating the production, packaging, and testing of chips under one roof. It is expected to create at least 3,000 jobs for residents of Grimes and Brazos counties.
The plant will produce two main categories of products:
- chips for edge computing and inference, intended for Tesla's Optimus robots and Cybercab robotaxis;
- high-performance solutions for SpaceX's orbital data centers.
The project site will be located near the Gibbons Creek Reservoir, which was previously utilized for cooling a coal power plant that was shut down in 2018. The company has committed to sourcing water exclusively from this reservoir, avoiding local underground water sources.
This is literally sci-fi 😍 https://t.co/QZJ6DU52Eq pic.twitter.com/8QxPev21Ul
— X Freeze (@XFreeze) August 6, 2026
“In addition to our headquarters in Starbase, where Starship is developed and launched, and the Starlink factory in Bastrop, we are embarking on the largest chip manufacturing project yet—bringing logic, memory, and advanced packaging under one roof,” Musk stated in a news release from the Texas governor's office.
SpaceX and Tesla's Non-Binding Commitments
In its IPO prospectus, SpaceX characterized Terafab as a "shared framework." There are no binding agreements between the company and Tesla regarding intellectual property rights distribution, and neither party is obligated to continue participation in the project.
Intel also announced participation in the Terafab construction in April, although the specifics of its contribution have not been disclosed. Earlier reports suggested that Intel would be responsible for the actual manufacturing.
When first mentioning the new project in March, Musk cited a figure of $25 billion. The current $16.8 billion is designated as the initial phase of investments—the scale of subsequent phases has not been revealed. Previously, SpaceX indicated that total expenses could reach up to $119 billion.
Plant Included in Computing Expenses
The agreements for Terafab coincide with a significant increase in SpaceX's expenditures on computing infrastructure. The company's capital expenditures in the second quarter surged over sixfold year-on-year, reaching $18.37 billion, with $15.83 billion allocated to AI initiatives.
Musk projected an increase in their own capacities to around 10 GW by the end of 2027.
In the meantime, the company is sourcing chips for immediate needs from external suppliers. On August 4, SpaceX announced a partnership with Nvidia, whereby the Starmind AI1 satellites will utilize Rubin GPUs and Vera CPUs. Musk confirmed that the AI infrastructure will be built exclusively on this manufacturer's hardware.
SpaceX has committed to using Nvidia GPUs exclusively because they are the best
— Elon Musk (@elonmusk) August 4, 2026
Community Benefits and Concerns
As the company ramped up its computing expenditures, the fate of the project was being decided at the local government level in Texas.
The large-scale plant required tax concessions from two authorities: Grimes County could exempt the company from local property taxes but not from school taxes, which are collected by separate administrative units with their own boundaries and elected boards.
School tax reductions are only granted through the JETI program: applications are reviewed by the state comptroller, school board, and governor, with the limitation lasting for ten years.
The Grimes County council approved the local portion of the agreement on June 3, providing full exemption from county property taxes and equipment until 2036 in exchange for fixed payments—$10 million upfront and $20 million annually.
Debate arose following the release of documents on June 6, revealing discrepancies between the stated and formal commitments: SpaceX claimed investments of $55 billion, whereas the agreement specified $5 billion by 2030 and 1,800 jobs by 2035. The company can exit the project at any time with a 30-day notice.
Concerns have been mounting. The county acknowledged that it had not prepared an economic justification for the tax breaks, and the payment for external legal counsel falls to SpaceX. Financial issues were compounded by worries over the impact on the power grid, water consumption, and the purchase of a pumping station on the Navasota River by Wit Tech LLC, a company linked to SpaceX, during negotiations for the concessions.
The governor approved the school-related agreements in July, and by early August, they came into effect. It was only after this, on August 5, that SpaceX representatives first addressed the community during a county council meeting.
Company attorney Buck Brennan suggested an alternative calculation: considering fixed payments, the effective tax discount reaches about 78%, with total payments to the county over 35 years amounting to $710 million. Environmental commitments were addressed with pledges to build their own gas power plants, not raise rates for other ERCOT consumers, and operate within a closed water cycle.
Initial earthworks are expected to begin soon, with construction set to follow in a few months.
It is worth noting that in its IPO application, SpaceX warned about the potential commercial viability issues of orbital data centers.