Aug 6 (Reuters) - Elon Musk's SpaceX and Tesla

will initially invest $16.8 billion to build Terafab,

an advanced AI semiconductor complex in Grimes County, Texas, as

the companies race to secure the chip capacity that the

billionaire has called essential to their future.

The facility is intended at narrowing the gap between global

chip supply and the more than 1 terawatt of computing power that

SpaceX and Tesla expect to need in the coming years.

Future expansion phases could push total investment much

higher, SpaceX said in a statement on its website on Thursday,

adding that the facility would employ at least 3,000 people.

"The Terafab is bringing cutting-edge manufacturing to

America, creating thousands of high-paying jobs in the Lone Star

State, and enabling us to produce AI chips at scale for use on

Earth and in space," Musk said.

Musk has been ​tightening integration of AI efforts across

his companies, with SpaceX acquiring his startup xAI earlier

this year ​in a deal focused on building space-based data

centers, before going public in June in the largest-ever IPO.

The vertically integrated, 100-million-square-foot Terafab

plant will make, package and test advanced logic and memory

chips under one roof, producing processors needed to power

Tesla's Optimus robots and Cybercabs, as well as high-power

chips to run SpaceX's space-based data centers.

A May filing showed SpaceX has proposed an initial

investment of $55 billion to build the Terafab, with the total

amount rising to $119 billion if extra phases are completed.

To aid the efforts, SpaceX earlier this year partnered with

Intel, which has been trying to expand its chip contract

manufacturing business as part of a turnaround effort.

Tesla broke ground in April on a research facility at the

North Campus of its Giga Texas plant, a precursor to Terafab.

The Grimes County site sits near the Gibbons Creek

Reservoir, whose water the companies plan to use for industrial

operations rather than local groundwater.

It adds to SpaceX and Tesla's growing Texas footprint,

alongside sites at Starbase, Bastrop and McGregor.

"Texas is where big ideas grow even bigger," the state's

governor, Greg Abbott, said in a statement.