Tesla's AI5 chip has completed design and is ready for manufacturing, delivering 40 times better performance than its predecessor and positioning the company to lead in self-driving cars and robots.

What happened: CEO Elon Musk announced that Tesla's latest in-house semiconductor chip, the AI5, has achieved tape-out—the point at which a chip design is complete and ready for manufacturing. The chip delivers 40 times better performance over the prior model AI4.

Why it matters: The AI5 enables on-board real-time inference, allowing autonomous vehicles and robots to make decisions without an internet connection—essential for self-driving cars navigating changing road conditions and for Tesla's planned Optimus robots. Musk described completing the chip design as "arguably the No. 1 most critical thing to get done." Combined with Terafab, a massive semiconductor factory co-developed with SpaceX, Tesla is building vertical integration that competitors like Ford and General Motors do not currently possess.

What to watch: Tesla is currently working with both Samsung and Taiwan Semiconductor to manufacture the AI5. The company aims to reduce reliance on outside manufacturers and transition from a carmaker primarily into an AI powerhouse through this chip and manufacturing capability.