SpaceX Turns to Natural Gas to Power Texas Terafab Chip Factory

SpaceX plans to use natural gas to power its upcoming Terafab semiconductor factory in Texas. Earlier this week, the Elon Musk-led company announced plans to build a natural gas power plant to supply electricity to the Terafab factory. The move highlights Musk’s growing focus on expanding SpaceX’s influence in AI chip production.

For SpaceX, the Terafab represents a major milestone toward building a vertically integrated semiconductor business. The company’s energy and data center lead Riley Trettel said SpaceX will be generating its own power for the project, including “very large battery arrays”.

Why is SpaceX Opting for Natural Gas Power?

Semiconductor production facilities consume massive amounts of electricity continuously. Brief power disruptions can affect production, destroying high-value chips. Due to the demanding reliability requirements, chipmakers must find stable, reliable energy sources such as natural gas, as opposed to intermittent renewable power.

SpaceX’s new energy strategy will likely benefit Tesla, which has been promoting sustainable energy solutions. The company's solar business has faced challenges in recent years. However, its reliance on natural gas for a flagship semiconductor facility reflects the practical energy demands of advanced chip manufacturing.

The investment comes at a time when demand for AI hardware is fueling rapid infrastructure expansion across the semiconductor industry. This expansion allows SpaceX and Tesla to secure chip supply for their AI needs while supplying external customers.

Which Other Musk Projects Are Powered by Natural Gas?

SpaceX’s Texas chip factory will not be the first Musk-led AI venture to rely on natural gas. xAI's data centers in Memphis are powered largely by gas-fired turbines. SpaceX has outlined plans to purchase billions of dollars' worth of gas turbines over the next few years, reinforcing its growing investment in fossil fuel-powered infrastructure for AI operations.

SpaceX, which recently listed publicly on the Nasdaq, secured a 100% property tax waiver from Grimes County after committing to invest at least $5 billion in the Terafab project by 2030. The project is expected to create a minimum of 1,800 full-time jobs by 2035.

In addition to the local tax incentives, Texas pledged $30 million in state support for the semiconductor facility. The first phase of the Terafab factory is expected to cost about $16.8 billion, which is significantly lower than SpaceX's initial estimate of $55 billion.

Impact of SpaceX’s Natural Gas Move on the AI Industry

The Terafab project will test whether SpaceX can bring chip production, power generation, and AI infrastructure under one roof. As SpaceX scales the facility, its reliance on natural gas could shape broader industry discussions around balancing energy security, production reliability, and sustainability. The project's outcome could also determine whether other AI and semiconductor companies adopt similar strategies.