Elon Musk intensifies the AI arms race: Tesla and xAI will expand procurement of NVIDIA and AMD chips
Elon Musk stated that Tesla and xAI will continue to procure chips from NVIDIA and AMD, planning to establish a new GPU factory in Memphis. Musk believes that chips are the main factor limiting the development of artificial intelligence and expects a future shift to a shortage of electrical equipment. He also mentioned that xAI's Colossus factory has installed 200,000 GPUs, which are used for training autonomous driving and robotic systems. Despite local community concerns about power consumption and pollution, Musk remains optimistic about the prospects of high-tech manufacturing
According to Zhitong Finance APP, Elon Musk stated on Tuesday that he expects Tesla (TSLA.US) and xAI to continue purchasing chips from semiconductor giants NVIDIA (NVDA.US) and AMD (AMD.US). Musk mentioned that his artificial intelligence company xAI has installed 200,000 GPUs at the Colossus factory in Memphis, Tennessee. He also stated that xAI plans to establish a $1 million GPU factory in the suburbs of Memphis. He did not specify how many chips the company has already ordered or when they might be installed.
Last year, Musk instructed NVIDIA to ship a large GPU order to xAI ahead of Tesla. In his automotive business, Musk stated that Tesla's Dojo supercomputer in Buffalo, New York, has been used to train its autopilot and Optimus robot systems. He said, "A few years ago, I made a very obvious prediction that the limitation of artificial intelligence would be chips."
On Tuesday, Musk boasted on xAI that Colossus is "the most powerful training cluster in the world right now," with "coherent training of over 200,000 GPUs."
Musk's choice to build a factory in Memphis has been praised by city officials as transforming the area into a "high-tech manufacturing center." However, local communities have protested against such energy and water-intensive operations, particularly the way xAI relies on gas turbines to power its supercomputers. The turbines emit nitrogen oxides that form smog, which are precursors to ozone and are associated with higher mortality risks from respiratory diseases.
Environmentalists have stated that xAI's use of turbines may "violate the Clean Air Act" and local permitting requirements for "major sources of air pollution."
Musk stated that he believes chips are currently the main limiting factor in the development of artificial intelligence, but he predicts that this will soon shift to "electrical equipment," and that by mid-2026, there will be a "fundamental power shortage" for AI companies.
Musk noted that China's investment in power generation currently exceeds that of the United States. However, he believes the U.S. still has an advantage in "breakthrough innovation." Musk said, "I think this is somewhat cultural; to achieve breakthrough innovation, you have to question authority. Fundamentally, when you are doing breakthrough innovation, you are questioning conventional wisdom."
When asked whether xAI and Tesla would merge, Musk stated that he is not currently considering this issue, but "it is not impossible," and it would "clearly require the support of Tesla shareholders." Musk's fans sometimes propose this concept, viewing the companies in his portfolio as part of the "Musk economy" rather than independent entities with obligations to different investor groups.
It is understood that Tesla and xAI have already begun collaborating. The electric vehicle manufacturer recently disclosed in a financial document that xAI spent approximately $191 million and $36.8 million on Tesla Megapacks, a utility-scale energy storage system, in February 2024 and 2025, respectively
