Tesla, a U.S. electric vehicle manufacturer, will reportedly outsource production of next-generation self-driving chips to Samsung Electronics.

Samsung’s Foundry Business Division beat Taiwan’s TSMC based on its chip design capabilities, process technology, and greater value for money. Industry watchers say that Samsung has laid the groundwork to chase TSMC.

Samsung has virtually been chosen to manufacture Tesla's second-generation self-driving chip HW4.0, which will be used for Tesla's electric vehicles starting from the second quarter of 2022. Tesla is under fire for the incomplete autonomous driving function of its cars. It is placing a big bet on the chip for its survival.

Samsung Electronics is reportedly planning to produce the Tesla chip using the 7-nm line in Hwaseong, Gyeonggi Province of Korea as early as the fourth quarter of this year. Although the 7-nm production line is not as advanced as a 5-nm one, it is a stable production line that has been verified in terms of economic efficiency, yields and chip performance. “For vehicle parts, what matters most is to reduce the possibility of accidents,” an industry insider said. "Tesla chose a 7-nm process instead of a 5-nm one, considering the stability of chips."

It is difficult to estimate the volume of the order from Tesla at this point. Demand for HW4.0 chip is expected to remain steady as Tesla is expanding the application of “full self-driving” (FSD) function to electric vehicles and plans to release 1.2 million pre-ordered electric pickup trucks next year.

Industry insiders note that Tesla chose Samsung Electronics over TSMC. Tesla discussed the matter with TSMC, but Samsung Electronics earned a higher score than TSMC in terms of chip design support, performance per price and long-term cooperation.

Not only Tesla but Google is strengthening cooperation with Samsung Electronics. Google announced in July that it will apply its own application processor (AP) “Tensor” to its smartphone “Pixel 6,” which is scheduled to hit the market in October. Samsung Electronics has been cooperating with Google from the AP design and development stage and will be in charge of Tensor chip production.

Xiaomi, China’s No. 1 smartphone maker, also had a meeting with Samsung Electronics to develop its own AP for smartphones. Samsung Electronics has invested more than 10 trillion won in the foundry sector a year since 2019. But its market share remains in the upper 10 percent range. The landscape of the global foundry industry has started to change.