On August 6, SpaceX and Tesla said the Terafab chip plant will be built in Grimes County, Texas, and announced an initial $16.8 billion investment. Elon Musk, who leads both companies, announced the decision.
Terafab Texas will be the largest and most valuable building on Earth by far.
And it will be stunningly beautiful. pic.twitter.com/4NweOqTL7y
— Elon Musk (@elonmusk) August 6, 2026
The manufacturing complex will cover 9.3 million square meters. A single building will combine chip production, packaging, and testing. The plant will create at least 3,000 jobs for residents of Grimes and Brazos counties.
The facility will produce two categories of products:
- chips for edge computing and inference (for Tesla Optimus robots and the Cybercab robotaxi);
- high-performance solutions for SpaceX’s orbital data centers.
The project will be located near Gibbons Creek Reservoir, previously used to cool a coal power plant that closed in 2018. The company pledged to draw water exclusively from this reservoir, not from local groundwater sources.
This is literally sci-fi 😍 https://t.co/QZJ6DU52Eq pic.twitter.com/8QxPev21Ul
— X Freeze (@XFreeze) August 6, 2026
“In addition to the headquarters in Starbase, where Starship is developed and launched, and the Starlink factory in Bastrop, we are embarking on the most ambitious chip manufacturing project — bringing logic, memory and advanced packaging under one roof,” Musk said in a statement from the Texas governor’s office.
SpaceX and Tesla have no binding obligations on the project
In its IPO prospectus, SpaceX described Terafab as a “general framework.” The document contains no binding agreements between the company and electric car maker Tesla: intellectual property rights are not allocated, and neither party is obligated to continue participating in the project.
In April, Intel also said it would take part in building Terafab but did not specify its contribution. Earlier reports indicated it would handle the manufacturing.
When first mentioning the project in March, Musk cited $25 billion. The current $16.8 billion is labeled as first-phase investment — the scale of subsequent phases was not disclosed. Earlier, SpaceX suggested total costs could reach up to $119 billion.
Plant included in computing expenditures
The Terafab agreements coincided with a sharp rise in SpaceX spending on computing infrastructure. The company’s capital expenditures in the second quarter rose more than sixfold year over year to $18.37 billion. Of that, $15.83 billion went to AI.
Musk forecast in-house capacity would grow to about 10 GW by the end of 2027.
At the same time, the company is buying chips for near-term tasks from external suppliers. On August 4, SpaceX announced a partnership with Nvidia: Starmind AI1 satellites will receive Rubin graphics processors and Vera central processors. Musk said the AI infrastructure would be built exclusively on this manufacturer’s equipment.
SpaceX has committed to using Nvidia GPUs exclusively because they are the best
— Elon Musk (@elonmusk) August 4, 2026
Incentives and residents’ concerns
While the company ramped up computing expenditures, the site’s fate was being decided by local authorities in Texas.
A plant of this scale required tax concessions from two bodies: Grimes County could grant relief from county property taxes but not school taxes — in Texas those are levied by independent administrative units with their own boundaries and elected boards.
Only the JETI program can provide a school tax discount: the application is reviewed by the state comptroller, the school board, and the governor, and the limitation applies for ten years.
The Grimes County board approved the local portion of the agreement on June 3: a full exemption from county property tax on property and equipment through 2036 in exchange for fixed payments — $10 million upfront and $20 million annually.
A dispute began after the publication of documents on June 6, when discrepancies emerged between stated and contracted commitments: SpaceX had cited $55 billion in investment, while the agreement fixed $5 billion by 2030 and 1,800 jobs by 2035. The company can exit the project at any time with 30 days’ notice.
Discontent grew. The county acknowledged it had not prepared an economic justification for the tax breaks, and SpaceX is covering the fees of the county’s outside attorney. Financial questions were joined by concerns over grid load, water consumption, and the purchase of a pumping station on the Navasota River by Wit Tech LLC, an entity linked to the company, during the incentive negotiations.
The governor approved the school portion of the agreements in July, and by early August they took effect. Only after that, on August 5, SpaceX representatives addressed residents for the first time at a county board meeting.
Company attorney Buck Brennon offered an alternative calculation: factoring in fixed payments, the effective tax discount is about 78%, and total payments to the county over 35 years would be $710 million. Environmental commitments included building dedicated gas power plants, not raising rates for other ERCOT consumers, and operating on a closed water loop.
Initial earthworks will begin soon, with construction to follow within a few months.
In its IPO filing, SpaceX warned that orbital data centers may prove commercially nonviable.
