Key Takeaways
- Daniel Ives of Wedbush maintained his Buy recommendation and $600 price objective for Tesla, suggesting approximately 57% potential upside
- CEO Elon Musk revealed Terafab: a dual chip manufacturing complex in Austin, Texas, developed through collaboration between Tesla, SpaceX, and xAI
- The first facility will produce semiconductors for Tesla’s electric vehicles and Optimus humanoid robots; the second focuses on AI infrastructure for orbital operations
- Ives characterizes Terafab as the opening chapter toward an anticipated Tesla-SpaceX combination he forecasts for “likely in 2027”
- Dan Levy from Barclays maintained a more reserved stance, holding his Equalweight recommendation and $360 price objective
Wedbush Securities analyst Daniel Ives has doubled down on his optimistic Tesla outlook, maintaining his Buy recommendation and industry-leading $600 price objective after CEO Elon Musk revealed details about an ambitious semiconductor manufacturing initiative dubbed Terafab.
Musk introduced the Terafab vision during a Saturday evening presentation at Austin’s historic Seaholm Power Plant, with Texas Governor Greg Abbott present for the announcement. The initiative represents a collaborative effort spanning Tesla, SpaceX, and xAI — the latter being acquired by SpaceX through an all-stock transaction last February.
The blueprint outlines two distinct semiconductor manufacturing facilities in Austin. The first will focus on chip production for Tesla’s electric vehicle lineup and its Optimus humanoid robot platform. The second targets advanced AI computing infrastructure, including space-based data center applications.
When operating at maximum capacity, Tesla projects the complex could achieve output equivalent to roughly 70% of TSMC’s present worldwide manufacturing volume. Musk’s ambitious target is to reach 1 terawatt of yearly production capacity — approximately twice the current United States output.
Development centers on two distinct chip architectures. The AI5 represents a ground-based inference processor designed for Tesla’s Full Self-Driving technology, Cybercab autonomous taxi service, and Optimus robots. Tesla asserts it provides a 50-fold performance enhancement compared to the existing AI4 processor. The D3 is a radiation-resistant chip engineered for SpaceX’s satellite network in orbit.
Musk indicated that 80% of Terafab’s manufacturing output would support space-based applications, while 20% would serve ground-based needs.
Initial production goals call for 100,000 wafer starts monthly, expanding to one million at peak capacity. The complex would manufacture between 100 and 200 billion specialized AI and memory semiconductors annually using 2-nanometer manufacturing processes.
Tesla’s Rationale for In-House Chip Manufacturing
According to Musk, existing suppliers — Samsung, TSMC, and Micron — cannot scale production quickly enough to meet demand. “There’s a maximum rate at which they’re comfortable expanding. That rate is much less than we’d like,” he explained.
Ives reinforced this perspective, stating these suppliers “are unable to meet future demand.” He positioned Terafab as a vertical integration strategy that unifies chip architecture, manufacturing, memory production, and final assembly in a single location — an integration level unprecedented at this magnitude in the semiconductor industry.
Tesla’s CFO acknowledged the projected $20–25 billion investment hasn’t been incorporated into the company’s 2026 capital expenditure framework, which already surpasses $20 billion. No specific construction schedule was disclosed.
Limited-volume production of the AI5 processor is anticipated in late 2026, with full-scale manufacturing beginning in 2027 — though Tesla had previously postponed the AI5 launch to mid-2027 before the Terafab disclosure.
Skepticism Remains Among Some Analysts
Barclays analyst Dan Levy sustained his Equalweight rating and $360 price target, cautioning the project could demand expenditures “many multiples” beyond his $50 billion optimistic scenario estimate.
Levy highlighted that Barclays projects Tesla’s 2026 free cash flow at negative $3 billion even before accounting for Terafab-related spending.
Ives also positions Terafab as the preliminary step toward a Tesla-SpaceX combination “likely in 2027.” He initially proposed this scenario in February, forecasting it could materialize “over the next 12 to 18 months.”
The broader Wall Street perspective on Tesla remains divided. The stock carries a Hold consensus rating on TipRanks, reflecting 13 Buy ratings, 11 Hold ratings, and 7 Sell ratings. The average analyst price target stands at $399.25 — indicating merely 4.2% upside potential from present trading levels. TSLA shares are down 14.8% year-to-date.
Separately, SpaceX is reportedly preparing to submit its IPO prospectus as early as this week, aiming for a public debut as soon as June with a $1.25 trillion valuation target.
