Elon Musk’s massive semiconductor plant could land in Arizona, New Mexico or Nevada if Texas declines more giveaways, SpaceX says in state application. The site of the demolished Gibbons Creek Power Plant in Grimes County, about 15 miles east of College Station, is seen Sunday, June 7, 2026. The site and surrounding area is the approximate location of the proposed SpaceX Terafab semiconductor chip manufacturing plant. Jay Janner/Austin American-Statesman
Last week, SpaceX was awarded tax breaks by a rural Texas county for its massive Terafab chip manufacturing factory. Now, the Elon Musk-led company wants more — and says it will consider moving the plant out of Texas if it doesn’t get them.
An entity called TeraFab AI LLC has filed for exemptions under the Texas Jobs, Energy, Technology and Innovation program, which provides a 10-year reduction in property taxes that help fund the operations of local school districts. The applications were filed Monday with the Texas Comptroller for tax breaks from Anderson-Shiro Consolidated Independent School District and Iola Independent School District. Both operate near the site in Grimes County where SpaceX is planning to build a semiconductor manufacturing plant on thousands of acres it’s been making deals to acquire.
Beyond seeking tax breaks, the TeraFab AI applications reveal new details about the massive project. They lay out plans for up to four construction phases with the first starting this year. For phase one, investment in property improvement, machinery and equipment is estimated to reach $10.37 billion by 2029, according to a document filed with the application to Anderson Shiro CISD. The application to Iola ISD lists a $6.43 billion investment for its first phase. Phase four outlines an investment of $15.62 billion for both districts.
TeraFab AI’s applications also tout benefits for the state through the project’s economic impact and tax revenue. The company points to total capital investment ranging from $55 billion to $119 billion for initial phases and creation of more than 4,000 new jobs.
Grimes County residents overflow a hearing last week in Grimes County on SpaceX’s proposed Terafab chipmaking plant. Commissioners approved tax breaks for the project an economic analysis found could create 2,000 jobs. Now, SpaceX is seeking state breaks and says the project could create twice that. Andrea Leinfelder/Houston Chronicle
The numbers differ from those laid out in SpaceX’s economic development agreement with Grimes County. The Starbase-based company, which has not yet signed that deal, would only be required to complete a capital investment of $5 billion and create 1,800 jobs to receive total county tax relief.
Nathan Jensen, a professor in the department of government at the University of Texas at Austin, noted that details to verify compliance with the Grimes County deal are slim and that there is a clause that allows SpaceX to challenge its tax appraisal. In what Jensen describes as a “shocking oversight,” the agreement documents don’t specify wage standards for jobs created.
Other states are up for consideration
In its new applications, Terafab AI notes that it has explored sites in Arizona, New Mexico and Nevada. Each market was assessed on total tax burden, availability of infrastructure, workforce availability and training incentives, and speed-to-market and permitting timelines.
While Texas offers strategic advantages in infrastructure and workforce, the applications say, property tax exposure represents the single largest recurring cost differential between Texas and competing jurisdictions. It estimates that it could reduce its effective tax burden by about 48%, materially impacting the value of its investment.
“Absent the limitation, the project (internal rate of return) would fall below the minimum investment threshold, and competing jurisdictions (e.g., Arizona) would present a more favorable after-tax return, in which case the project would likely be relocated outside Texas,” the applications read.
Companies that participate in the new Jobs, Energy, Technology and Innovation — or JETI — program are required to create a specific number of full-time jobs with health benefits and competitive pay for salaried positions. They also must submit reports to the state every two years detailing their compliance with the program standards.
The program was established as a replacement for the state’s Chapter 313 abatement program, which was phased out after complaints that it contributed to inequity in public schools.
Under the terms of JETI, TeraFab AI is asking the districts to freeze SpaceX’s school maintenance and operations property taxes at 50% of appraised value for 10 years per construction phase. The state makes up the difference from its general fund, which is funded by all Texas taxpayers.
Tesla and SpaceX CEO Elon Musk, left, with Gov. Greg Abbott at a 2023 groundbreaking ceremony for the Austin-based auto manufacturer's lithium refining facility in Robstown. Angela Piazza/Corpus Christi Caller-Times file photo
Under state guidelines, TeraFab AI should have addressed its intent to apply for the tax breaks with the school districts before making them official. The company did that Monday, when it posted its applications to the state comptroller’s application portal. That started a 60-day clock for the comptroller’s office to verify the application is complete, conduct an economic benefit and statutory compliance review and either recommend or not recommend the application.
The state comptroller is expected to issue its formal recommendation early next week. Once that happens, the school districts and governor’s office have 30 days to consider it and determine whether to agree to the deal. The school districts are also required to conduct a public hearing.
The districts and the governor’s office could decide soon whether to grant the tax breaks. Iola ISD has scheduled a closed session during its board meeting next week to discuss the application and potentially consult with the district’s attorney.
Gov. Greg Abbott and SpaceX CEO Musk are on friendly terms, with the governor appearing at the downtown Austin announcement of plans for Terafab in March. The governor has publicly acknowledged he texts with Musk “all the time,” but has fought media requests for public release of those communications, saying they’re “intimate and embarrassing.”