Samsung Electronics’ landmark $16.5 billion chip supply deal with Tesla marks a strategic breakthrough in its push to revive and scale its struggling foundry business, which has been losing ground to dominant rival TSMC.
Tesla produced 410,244 electric vehicles during the second-quarter of 2025. The agreement — for producing Tesla’s next-generation AI6 chips at Samsung’s new Taylor, Texas facility — signals a critical vote of confidence from a marquee client and could reposition Samsung as a competitive force in the contract chip manufacturing space, Reuters news report said.
Samsung’s Foundry business in Q1 2025 faced weak earnings due to sluggish seasonal demand for mobile devices, customer inventory adjustments, and low fab utilization. However, the company is planning strategic shifts to stabilize and grow the business through 2025.
In Q2 2025, Samsung aims to stabilize its 2nm process technology and improve earnings by targeting strong demand from U.S. mobile and automotive customers. Looking ahead to the second half of 2025, Samsung plans to begin mass production of its 2nm chips and secure major orders. It is also focusing on strengthening its specialty processes, particularly on mature nodes, to support diversified demand beyond smartphones.
Overall, Samsung Foundry’s strategy emphasizes scaling advanced nodes like 2nm, enhancing production for automotive and mobile applications, and expanding specialty offerings to improve fab utilization and profitability.
Samsung’s Key Strategies
Foundry Expansion to the U.S.:
Samsung’s Taylor plant in Texas is central to Chairman Jay Y. Lee’s vision of diversifying beyond memory chips into advanced logic chip production. The facility represents Samsung’s largest foreign investment and a critical step in strengthening its U.S. semiconductor footprint.
Client-Centric Manufacturing Approach:
In a rare move, Samsung has agreed to let Tesla assist in maximizing chip manufacturing efficiency — a customer-first strategy aimed at building long-term relationships with high-value clients and optimizing fab output.
Recovery of Client Pipeline:
The Tesla deal addresses one of Samsung’s biggest challenges: customer attrition. The contract fills a major capacity gap at the Taylor plant, which had previously struggled to attract anchor customers and delayed its ASML equipment orders due to demand uncertainty.
Long-Term Revenue Assurance:
The deal, running through 2033, offers Samsung a stable and predictable revenue stream for nearly a decade, easing financial pressure on its foundry unit, which reportedly lost over $3.6 billion in H1 2025.
Geopolitical Alignment and U.S. Trade Diplomacy:
While not officially linked, the partnership with Tesla, an American company, could support South Korea’s broader trade negotiations with the U.S., potentially aiding efforts to avert or reduce looming tariffs on Korean exports.
Benefits of Samsung Chips for Tesla and the Market
Advanced Node Capabilities:
Samsung’s foundry is set to produce the AI6 chips, suggesting a capability in cutting-edge process technologies, potentially 4nm or beyond, suited for Tesla’s Full Self-Driving (FSD) and AI-intensive workloads.
Localized Manufacturing:
Proximity of the Texas fab to Tesla operations ensures reduced logistics complexity, faster delivery cycles, and improved coordination for design-to-silicon execution.
Custom Design Flexibility:
Samsung’s willingness to collaborate closely on production efficiency gives Tesla more design influence, which is critical for performance-optimized chips in autonomous systems.
Diversification for Tesla:
Partnering with Samsung provides Tesla an alternative to TSMC, mitigating risks tied to over-reliance on a single supplier and supply chain concentration in Taiwan.
Major chip makers in automotive industry
Major chip makers in the automotive industry include Infineon, NXP Semiconductors, Renesas, STMicroelectronics, Texas Instruments, Bosch, Qualcomm, Nvidia, Intel (via Mobileye), and Samsung Electronics. These companies are actively expanding their production capabilities and product portfolios to support the transition toward electric vehicles (EVs), advanced driver-assistance systems (ADAS), and software-defined vehicles.
Infineon has been expanding capacity with a $1.9 billion fab in Dresden and new investments in Villach and Kulim to produce silicon carbide (SiC) and gallium nitride (GaN) chips for EVs. It supplies major automakers including Tesla and BYD.
NXP is working with TSMC to manufacture 16nm processors for vehicle networks and ADAS, and has introduced new radar system-on-chips and zonal controller platforms.
Renesas has been focusing on power management and safety solutions, recently acquiring GaN power firm Transphorm and partnering with global OEMs such as Toyota and GM to develop domain-based vehicle computing systems.
STMicroelectronics is investing heavily in SiC production, building a multi-billion-euro facility in Italy and a joint venture fab in China with Zhejiang Sanan. It supplies EV chips to Tesla, Hyundai, and BYD.
Texas Instruments is pursuing vertical integration by constructing several fabs in Texas with investments totaling over $30 billion, aiming to secure long-term supply of analog and power management chips for vehicles.
Bosch is expanding its manufacturing footprint in Europe, acquiring more stake in a Dresden fab and investing €3 billion under the EU Chips Act, with a focus on radar and SiC components.
Qualcomm is deepening its presence in automotive computing with its Snapdragon Ride and Ride Flex platforms, securing partnerships with Mercedes-Benz, Stellantis, and BMW to power cockpit and ADAS functions.
Nvidia is offering centralized computing platforms like DRIVE Thor, designed to support infotainment, ADAS, and autonomous driving in a unified system. Its partners include BYD, Volvo, XPeng, and JLR.
Intel, through its Mobileye division, continues to supply computer vision chips and self-driving solutions, with the EyeQ6 platform gaining traction.
Collectively, these companies are shifting toward AI-based in-vehicle computing, efficient EV power systems, and resilient supply chains through regional investments in fabrication and R&D. The automotive semiconductor market is expected to remain one of the fastest-growing sectors in the chip industry over the next decade.
This deal positions Samsung to regain some lost momentum in the high-value chip foundry space and may pave the way for more AI and automotive clients in the future. With TSMC still holding a commanding 67 percent market share versus Samsung’s 8 percent, the road ahead is steep — but deals like this demonstrate Samsung’s resolve to compete at the highest levels of semiconductor innovation.
Baburajan Kizhakedath
