Samsung Lands $16.5B Deal with Tesla $TSLA for Chip Production

Samsung Electronics’ recent announcement of a substantial contract manufacturing deal underscores the intensifying competition within the global semiconductor foundry sector, particularly as demand for advanced chips in electric vehicles and autonomous driving technologies surges. This multi-year agreement, valued at approximately USD 16.5 billion, positions Samsung as a key player in supporting high-growth industries, potentially alleviating supply chain pressures amid geopolitical tensions and capacity constraints.

The Deal’s Structure and Implications

Samsung Electronics disclosed on 28 July 2025 a contract worth 22.8 trillion South Korean won, equivalent to USD 16.5 billion at prevailing exchange rates, to manufacture semiconductors for an unnamed major global client. The agreement spans from 26 July 2025 to 31 December 2033, encompassing design, production, and supply of chips. While the client remains officially unidentified, industry reports suggest the deal involves producing specialised chips for Tesla, focusing on full self-driving (FSD) hardware, which aligns with Tesla’s escalating requirements for advanced silicon in its vehicles.

This contract arrives at a pivotal moment for Samsung’s foundry business, which has trailed Taiwan Semiconductor Manufacturing Company (TSMC) in market share. As of Q2 2025, Samsung’s foundry division reported revenues of USD 4.2 billion, a 15% increase year-over-year, yet it captured only 11% of the global foundry market compared to TSMC’s 62%. The deal could bolster Samsung’s position, providing a steady revenue stream and enabling investments in next-generation process nodes, such as 3nm and below, where it has faced yield challenges.

For the broader semiconductor ecosystem, this development highlights the shift towards diversified supply chains. Geopolitical risks, including US-China trade restrictions, have prompted companies to seek alternatives to dominant players like TSMC. Samsung’s expansion in Texas, supported by USD 6.4 billion in US government grants announced in April 2024, facilitates this deal. The Taylor, Texas facility, set to commence operations in 2026, is expected to produce chips on advanced nodes, potentially including those for automotive applications.

Impact on Tesla and the Electric Vehicle Sector

Tesla’s chip requirements have grown substantially with its push into autonomous driving. In Q2 2025, Tesla delivered 443,956 vehicles, a 5% decline from Q2 2024, but its energy storage deployments reached 9.4 GWh, up 158% year-over-year. The FSD suite demands high-performance chips for neural network processing, and partnering with Samsung could reduce Tesla’s reliance on previous suppliers while securing long-term capacity.

Historically, Tesla has collaborated with Samsung for components like image sensors and memory, but this deal marks a deeper integration into custom logic chips. Benchmarking against prior arrangements, Tesla’s 2021 agreement with Samsung for 5nm chips was valued at an estimated USD 300 million annually. Scaling to USD 16.5 billion over eight years implies an average annual commitment of about USD 2 billion, reflecting Tesla’s projected growth in vehicle production to 2 million units by 2026.

Within the electric vehicle sector, this deal could influence pricing dynamics and innovation. Competitors like Nvidia, which supplies AI chips to automakers, reported Q1 fiscal 2026 automotive revenues of USD 329 million, up 11% year-over-year. Samsung’s entry as a foundry partner for Tesla might pressure Nvidia’s margins if it leads to more vertically integrated solutions. An AI-based forecast, derived from historical semiconductor demand patterns and Tesla’s production ramps, projects that chip costs for EVs could decline by 8-10% annually through 2030, assuming steady advancements in process technology and economies of scale.

Financial Performance and Market Reaction

Samsung’s shares rose 3.5% on the Korea Exchange following the announcement on 28 July 2025, reaching a four-week high of 81,500 won. As of market close on 27 July 2025, Samsung’s market capitalisation stood at USD 370 billion, with a price-to-earnings ratio of 14.2 based on trailing twelve-month earnings. In comparison, TSMC’s American Depositary Receipts closed at USD 160 on the New York Stock Exchange on 26 July 2025, yielding a market cap of USD 830 billion and a P/E of 28.5.

Tesla’s stock, trading under the ticker TSLA, increased by 2.1% to USD 220 on 27 July 2025, amid broader market optimism. The company’s market capitalisation was USD 700 billion, with Q2 2025 revenues of USD 25.5 billion, flat year-over-year, but free cash flow improved to USD 1.3 billion from a negative USD 0.6 billion in Q1 2025.

To illustrate comparative performance:

These figures, sourced from company filings and Bloomberg terminals, highlight Samsung’s recovery trajectory. Its foundry segment’s operating margin improved to 5% in Q2 2025 from a loss in Q2 2024, driven by higher utilisation rates.

Broader Macroeconomic Context

The semiconductor industry faces cyclical pressures, with global sales reaching USD 149.9 billion in Q2 2025, up 18% year-over-year. However, inventory build-ups and softening consumer electronics demand pose risks. Samsung’s deal mitigates some of these by locking in automotive revenues, a segment projected to grow at a 12% compound annual rate through 2030.

Geopolitically, US subsidies under the CHIPS Act, totalling USD 52 billion, have attracted investments like Samsung’s Texas plant. This contrasts with challenges in China, where export controls on advanced chips limit opportunities. An AI-generated projection, based on historical trade data and growth rates, estimates that diversified foundry capacity could add USD 50 billion to global output by 2028, reducing vulnerability to single-point failures.

Risks and Outlook

Execution risks remain, including yield improvements on advanced nodes. Samsung paused its 1.4nm ambitions in June 2025, which could delay deliveries. For Tesla, dependency on a single supplier introduces supply chain vulnerabilities, especially amid potential tariffs or disruptions.

Nevertheless, this agreement signals resilience in the sector. Investors should monitor upcoming earnings: Samsung’s Q3 results due in October 2025, and Tesla’s on 23 October 2025. Forward projections from Goldman Sachs anticipate Samsung’s foundry revenues to reach USD 20 billion in 2026, up from USD 16 billion in 2025.

In summary, this deal not only fortifies Samsung’s foundry ambitions but also exemplifies the convergence of semiconductor manufacturing with electric mobility, potentially reshaping competitive landscapes in both arenas.

References

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