Samsung's $16.5B Tesla deal could make its foundry business — or break it

This article is by Shim Seo-hyun and read by an artificial voice.

Will Tesla's $16.5 billion deal be the golden goose for Samsung Electronics' foundry?
Tesla CEO Elon Musk's public disclosure of a foundry deal with Samsung Electronics Executive Chairman Lee Jae-yong has sent shock waves through the semiconductor industry.
Known for obsessively internalizing all production of parts for his SpaceX spacecrafts and Tesla electric vehicles, Musk revealed the deal on his X account on July 28, declaring, "I will walk the line personally to accelerate the pace of progress," noting that "the fab is conveniently located not far from my house."
He added that Samsung had "agreed to allow Tesla to assist in maximizing manufacturing efficiency." The disclosure has raised both expectations for a turnaround for Samsung Foundry and concerns about early termination or technology leaks.
The mutual leap of faith
On Sunday, sources from the semiconductor industry revealed that Samsung Foundry's $16.5 billion deal with Tesla to manufacture AI chips for autonomous driving reflected "a decision only the top leaders of both companies could make," underscoring that it was a bold move for both sides.
Over the past few years, most advanced AI-related foundry orders were dominated by the Taiwanese semiconductor manufacturer TSMC. U.S. Big Tech companies later approached Samsung in an attempt to reduce their dependence on TSMC, but no contracts were finalized.
"At a time when trust in the yield rate [ratio of usable chips] of Samsung Foundry's advanced processes is low, the most important factor is reference cases, and there were no clients willing to be the test subject," a source in the foundry industry said.
Even in this case, there was reportedly a tug-of-war until the last minute over the possibility of going with TSMC. The final decision was made by Musk and Lee. During a video call between the two, they exchanged strong commitments regarding technology and yield rates, and also agreed on conditions such as Tesla's assistance in "maximizing manufacturing efficiency," and Musk's presence on the factory floor.

Musk, the best or worst client
Kim Sarah Eun-kyung, professor of semiconductor engineering at Seoul National University of Science and Technology, said that the details disclosed by Musk are "not typical foundry contract terms."
For example, clients such as Apple and Nvidia may look into the equipment and process technologies used by TSMC, but issues like manufacturing efficiency or yield are generally within the foundry's purview.
This connects to Tesla's unique nature as a "manufacturing Big Tech" company, which is rare in the United States. Nvidia and Apple outsource semiconductor and smartphone manufacturing to TSMC and Foxconn, respectively, whereas Tesla builds its own manufacturing plants, called Gigafactories, in the United States to produce vehicles.
Musk once declared, "At this point, I think I know more about manufacturing than anyone currently alive on Earth," during a 2022 TED talk. He is known for overseeing the manufacturing process firsthand while sleeping on a makeshift bed on the factory floor, otherwise, "it's like being a cavalry captain who can't ride a horse!"
"It's a good opportunity for Samsung to learn from Tesla's know-how in U.S.-based manufacturing operations," Prof. Kim said. "But since Tesla may be shown information that other clients don't get access to, there is a possibility of semiconductor technology being exposed."
Although Tesla does not manufacture semiconductors itself, it possesses extensive knowledge about chips for automobiles and robots, which could be a double-edged sword for Samsung Electronics. At a staff event last March, Musk welcomed those interested in developing advanced chips to come to Tesla, insisting that the company would continue to improve AI inference computing.

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