Analysis: Tesla's US$16.5b chip deal gives Samsung major lift in 2nm race against TSMC

Tesla has signed a 7.5-year, US$16.5 billion contract with Samsung to produce its next-generation A16 chip using Samsung's 2nm process at its Texas facility. The deal represents a significant boost for Samsung, enhancing its foundry utilization and strengthening its foothold in the US automotive chip sector amid growing competition with TSMC.

Following Samsung's filing on July 28 announcing a US$16.5 billion deal with an undisclosed client, Tesla CEO Elon Musk confirmed on X that Tesla will produce its A16 chip to Samsung's 2nm line in Texas under a long-term deal from July 2024 to December 2033.

Tesla remains a relatively small client for TSMC. Even if Tesla were to allocate the entire US$16.5 billion to TSMC, that would equate to roughly US$2 billion per year, just over 2% of TSMC's estimated US$90 billion revenue in 2024.

In comparison, Bloomberg data shows that Apple spent over US$23 billion in 2023 sourcing TSMC's chips, and Nvidia procured TSMC's products worth nearly US$14 billion in 2024.

Tesla's key suppliers include Nvidia, which represents 13% of the company's revenue, alongside major battery manufacturers such as CATL, LG Energy Solutions, and Panasonic. These battery suppliers collectively account for approximately 15% of Tesla's expenses.

Still, the deal is significant for Samsung financially and strategically. According to TrendForce, Samsung's wafer foundry revenue was US$3.26 billion in the fourth quarter of 2024 before falling to US$2.89 billion in the first quarter of 2025, implying an annual run rate of around US$12 billion. The Tesla contract could therefore account for more than 10% of Samsung's annual foundry business and provide crucial volume to improve 2nm utilization.

Samsung implied the Tesla deal in its first-quarter earnings presentations, the company said it expected to stabilize its 2nm process and drive earnings improvements by actively addressing strong US mobile and automotive demand, adding that it aims to start 2nm mass production, secure major orders, strengthen specialty processes on mature nodes in the second half of the year.

As Samsung is expected to hold its earnings call for the quarter that ended in June, the deal is expected to be discussed further during Samsung's second-quarter 2025 earnings call in the coming days.

Source: Bloomberg, July 2025

Source: Bloomberg, July 2025

Article edited by Jack Wu