Space Exploration Technologies Corp. (NASDAQ:SPCX) and Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk announced that construction will begin on the Terafab semiconductor manufacturing facility in Grimes County, Texas. Once completed, the facility will span 100 million square feet, making it the world's largest building by floor area—more than five times the size of the current record-holder, China's New Century Global Center. The plant is designed to produce more than 1 terawatt of AI compute hardware annually, consolidating logic, memory, packaging, and testing under one roof to mitigate supply chain risks for both companies.

Facility Scale and Design

The Terafab represents a significant expansion in physical infrastructure for Musk's ventures. According to data cited from World Atlas, the New Century Global Center in Chengdu, China, holds the existing record at 18.9 million square feet. The proposed Texas facility will dwarf this benchmark, covering 100 million square feet.

Musk aims to integrate the entire semiconductor production lifecycle within this single site. This vertical integration strategy is intended to address global supply chain constraints by housing logic, memory, packaging, and testing operations together.

Compute Allocation and Strategic Goals

The facility will primarily serve SpaceX and Tesla's artificial intelligence requirements. Musk confirmed via social media that the Terafab's output would be split approximately 75% for SpaceX and 25% for Tesla. The majority of the compute capacity will support SpaceX's AI spacecraft and space infrastructure, while the remainder will power Tesla's Optimus humanoid robots and its Cybercab fleet.

During SpaceX's first earnings call since going public, Musk stated that the company targets $1 trillion in revenue by 2030. He also emphasized the role of Starlink, asserting that the satellite internet service will be integrated into every car to provide super high bandwidth to billions of vehicles. The Terafab's custom chips are critical to enabling these high-bandwidth connectivity and autonomous driving capabilities.

Market Reaction

Following the announcement, Space Exploration Technologies Corp. shares traded lower in pre-market activity. SPCX was down 1.51% to $136.63 during pre-market trading on Tuesday. The market movement reflects investor digestion of the massive capital expenditure required for such a large-scale facility, despite the long-term strategic benefits of securing dedicated AI compute hardware.

ARK Invest, led by Cathie Wood, stated on Monday that a merger between Tesla Inc. and Space Exploration Technologies Corp. could be announced before the end of 2026. The investment firm views potential regulatory hurdles related to Tesla's operations in China as manageable rather than insurmountable, suggesting that Chinese assets could be ring-fenced to address national security concerns associated with SpaceX's U.S. government contracts.

Elon Musk, CEO of both companies, responded to the discussion by calling China "awesome" on X, strongly encouraging people to visit. This comment came during an episode of ARK Invest's podcast, The Brainstorm, where hosts Sam Korus, Brett Winton, and Nick Grous debated whether Tesla's Shanghai factory would complicate a combination. Winton noted that while SpaceX faces technology restrictions in China, structural solutions likely exist to separate the entities' operational footprints.

Financial Links Between Entities

Tesla and SpaceX already maintain significant financial and operational ties, reinforcing the feasibility of a deeper integration. In the second quarter, SpaceX disclosed it purchased $295 million of Tesla Megapack batteries. This transaction brought SpaceX's total first-half purchases of Tesla batteries to $329 million. These deals add to existing connections, including Tesla's earlier $2 billion investment in xAI, which was subsequently converted into SpaceX equity.

Strategic Context and Valuation

The prospect of a merger gained momentum following SpaceX's public debut. JPMorgan noted that SpaceX's valuation of approximately $2.2 trillion could serve as acquisition currency for an all-stock deal. However, any transaction would require negotiations over Tesla's share price, shareholder approval, and regulatory clearance. Musk previously dismissed a Wall Street Journal report in July suggesting Tesla was considering selling its China business to facilitate the merger, labeling the claim as fake news.

What the Numbers Show

Despite the strategic alignment, market sentiment for Tesla remains mixed. TSLA shares closed 0.7% higher at $330.88 on Monday but fell 0.19% in extended trading. Benzinga edge rankings indicate TSLA has a Momentum score in the 10th percentile and a Growth score in the 40th percentile, suggesting cautious investor positioning despite the high-profile merger speculation.