Investing.com -- Tesla is positioning chip production at the center of its long-term growth strategy, but the scale and feasibility of its newly outlined “Terafab” initiative remain uncertain.

Presented by Tesla’s Elon Musk, the plan targets production of 1 terawatt of compute capacity annually, including logic, memory and packaging. SpaceX and Tesla will ‌build two advanced chip factories at a sprawling facility in Austin, Texas, one to power cars and humanoid robots, and another designed for artificial intelligence data centers in space.

This would represent roughly 50 times current global AI compute output.

The project is expected to be a joint effort involving Tesla, SpaceX and xAI, with a large portion of output intended for space-based applications. Musk indicated about 80% of compute would be used in space, with the remainder supporting terrestrial uses such as autonomous vehicles and humanoid robots.

Barclays analysts say the announcement reinforces Tesla’s shift toward a “physical AI” strategy, where chips become a core enabler of future products and services.

But also questioned how quickly the company can scale manufacturing given a lack of experience in semiconductor production and the complexity of advanced chip fabrication.

There is also execution risks tied to vertical integration, noting Tesla may need to build capabilities typically handled by established players such as TSMC and Samsung Electronics.

The total capital spending for Terafab could exceed earlier expectations of $50 billion by a wide margin, potentially requiring phased construction and funding support from Tesla and its affiliates.

While long-term investors may view the plan as reinforcing Tesla’s growth narrative, Barclays described Terafab as a “show-me” story, with nearer-term execution likely to fall short of the headline targets