SEOUL, South Korea: Elon Musk has confirmed that Tesla has entered into a US$16.5 billion chip supply agreement with Samsung Electronics, securing a significant commitment that is expected to support Tesla's next wave of AI chips while offering a lifeline to Samsung's loss-making foundry business.

Musk's announcement on X sent Samsung shares climbing more than 4 percent. He revealed that the chips would be manufactured at Samsung's upcoming facility in Texas and described the partnership as strategically vital.

"Samsung's giant new Texas fab will be dedicated to making Tesla's next-generation AI6 chip. The strategic importance of this is hard to overstate," Musk posted. He added that Tesla will assist Samsung in streamlining manufacturing processes. "This is a critical point, as I will walk the line personally to accelerate the pace of progress," he wrote, noting the fab's proximity to his residence.

Samsung had disclosed the $16.5 billion chip contract earlier, without naming the client. The South Korean company cited the client's request for confidentiality. Three sources with knowledge of the deal later told Reuters that Tesla was the buyer.

The deal, which runs through the end of 2033, comes at a time when Samsung is under growing pressure to produce chips for artificial intelligence. The company has been losing ground to rivals like TSMC and SK Hynix in advanced chip manufacturing, impacting its market share and profitability.

Samsung, the world's largest memory chip manufacturer, also operates a foundry business that produces logic chips based on customer designs. However, it has faced challenges in retaining high-profile clients. TSMC, a key competitor, boasts major customers including Apple, Nvidia, and Qualcomm.

Pak Yuak, an analyst at Kiwoom Securities, noted that the Tesla deal could help offset losses in Samsung's contract chip-making business, which he estimated had racked up over five trillion won ($3.63 billion) in losses in the first half of 2025.

The potential use of Samsung's Taylor, Texas fab for the Tesla chips could breathe new life into the project. The company's efforts to secure major deals have caused delays, and the Tesla order may accelerate its progress.

Though Samsung is currently working on 2-nanometer process technology, the Tesla chips are unlikely to use this advanced node, according to BNK Investment & Securities analyst Lee Min-hee. The company continues to face technological hurdles as it seeks to catch up with TSMC in high-end chipmaking.