Samsung Electronics has secured a $16.5 billion (£12.3bn) deal to manufacture AI chips for Tesla in Texas, in a major win for its foundry business that has persistently trailed Taiwan Semiconductor Manufacturing Corp.

Samsung initially disclosed the deal in a securities filing in South Korea but did not name the counterparty, citing a confidentiality agreement, but Tesla later acknowledged the arrangement.

The deal is scheduled to run from 26 July of this year up to the end of 2033 and involves Tesla’s next-generation AI6 chip, intended to process AI data in self-driving cars and humanoid robots.

Significant deal

Samsung currently makes Tesla’s AI4 chip and TSMC is to make the AI5 chip, initially in Taiwan and then at a plant in Arizona, Tesla said.

The chips are part of Tesla’s drive to refocus its business away from electric cars, where its shipments have been declining, toward robots, self-driving cars and autonomous taxis.

The electric vehicle maker also has a self-designed AI chip for data centres called Dojo, which is intended to process data from its nascent self-driving Robotaxi service.

Tesla chief executive Elon Musk talked up the Samsung deal on social media, saying $16.5bn was “the bare minimum” and output could be “several times higher”.

The chips are to be manufactured at a new Samsung plant in Taylor, Texas, that is being built out partly on the basis of financial support from the US federal government.

AI focus

Samsung Securities analysts said the deal means the plant should be able to largely focus on chips for AI data centres and robots, diversifying away from Samsung’s existing smartphone-focused customer base for its foundry business.

Samsung’s foundry business is the second-largest in the world after TSMC, but has been unable to gain market share on its rival in spite of heavy investment.

Samsung Electronics’ shares rose 9 percent after the deal was announced. Samsung’s stock price plunged to four-year lows late last year as investors expressed frustration with its difficulties taking advantage of the booming AI market.