Elon Musk’s TeraFab is competing in the EUV lithography equipment market by developing free-electron laser (FEL) technology as an alternative to traditional ASML systems.

In spring 2026, Elon Musk officially unveiled the TeraFab chip manufacturing initiative. His rationale was straightforward: both SpaceX and Tesla will eventually require at least one terawatt of computing power—a scale exceeding ten times the current global semiconductor production capacity.

Later that month, Musk signaled an even larger strategic pivot by entering the lithography equipment market. Industry observers noted that TeraFab’s announcement pointed toward the free-electron laser (FEL) pathway as a means to disrupt the traditional extreme ultraviolet (EUV) monopoly. Musk later reinforced this speculation on social media with the post “FEL FTW” (FEL will win), widely interpreted as indirect confirmation. Coupled with TeraFab’s elongated factory layout and Musk’s public statements, the FEL technology route has emerged as the leading hypothesis. Under prior plans, TeraFab intends to build an integrated semiconductor fabrication facility capable of producing both logic and memory chips, consolidating all manufacturing steps—including lithography, packaging, and testing—within a single site.

This technological shift mirrors broader industry movements. Last July, semiconductor startup xLight announced the completion of a $400 million oversubscribed Series B funding round. The capital will be primarily directed toward FEL research and development, aiming to overcome the physical limitations of existing EUV lithography and provide critical light-source support for the mass production of 2-nanometer and more advanced process nodes. Notably, in March of last year, former Intel CEO Pat Gelsinger announced via LinkedIn that he had joined xLight as Executive Chairman.

For a period, the inherent characteristics of FEL technology sparked intense debate across the semiconductor sector. Currently, ASML of the Netherlands remains the sole manufacturer of EUV lithography systems globally, commanding over 90% of the lithography equipment market.

ASML’s EUV lithography machines utilize a laser-produced plasma (LPP) light source. The system operates by directing a 30-kilowatt carbon dioxide laser at tin metal droplets ejected from a nozzle at a rate of 50,000 droplets per second. Each droplet is struck twice—requiring 100,000 laser pulses per second—which vaporizes them into plasma and generates 13.5-nanometer EUV light through energy transitions between high-energy states of tin ions.

While LPP technology successfully commercialized EUV lithography, its inherent physical constraints are becoming increasingly pronounced as process nodes shrink. First is the energy conversion efficiency bottleneck. As noted, the critical metric is the 13.5-nanometer wavelength. Compared to the 193-nanometer light source used in mainstream deep ultraviolet (DUV) lithography, EUV’s wavelength is one-fifteenth as long, enabling finer circuit etching on silicon wafers. ASML currently relies on a carbon dioxide laser from U.S.-based Cymer to excite tin plasma and produce 13.5-nanometer extreme ultraviolet light. Cymer’s technology achieves a laser-to-plasma conversion efficiency of 5.5%. When combined with the CO2 laser’s electrical-to-optical efficiency of approximately 10%, along with transmission losses from collection mirrors, the actual EUV light utilization from the power grid to the wafer typically falls below 0.5%.

Second is tin debris contamination. During plasma generation, high-speed sputtered tin ions and neutral particles continuously deposit on the surface of highly expensive multilayer mirrors, progressively reducing reflectivity and shortening component lifespan. Third is the power ceiling. Current LPP-EUV sources have plateaued at a maximum output of approximately 600 watts. However, manufacturing requirements for the 2-nanometer node and beyond demand EUV power exceeding 1.5 kilowatts. At present, 500- to 600-watt EUV systems rely heavily on multiple patterning techniques to accumulate photon dosage and compensate for the shortfall in source power.

In February of this year, ASML announced plans to boost the production efficiency of its next-generation high-numerical-aperture (high-NA) EUV lithography machines by 50% before 2030. This will be achieved through a newly developed light-source system capable of delivering up to 1,000 watts. By 2030, the wafer processing capacity of a single EUV machine is projected to increase from 220 wafers per hour to 330 wafers per hour.

Unlike LPP technology, FEL does not rely on plasma conversion. Standing for free-electron laser, the entire light-source architecture begins with an electron gun emitting an initial electron beam, which is then accelerated to near-light speed by a linear accelerator—advanced designs typically employ superconducting linear accelerators. This high-density relativistic electron beam enters an undulator composed of a periodic alternating magnetic field, causing the electrons to oscillate transversely and generate spontaneous radiation. The radiation field continuously modulates the electron beam, prompting the formation of micro-bunches with a periodicity that matches the radiation wavelength. These micro-bunched electrons emit coherent radiation, creating a positive feedback loop that results in the exponential amplification of radiation intensity. Through additional techniques such as seed injection, the system ultimately produces a stable EUV beam.

Consequently, the extreme ultraviolet wavelengths generated by FEL are considered a prime candidate for next-generation lithography. These wavelengths are shorter than today’s 13.5-nanometer EUV standard and fall within the soft X-ray spectrum. According to publicly available information, xLight’s technological objective is to precisely tune the Blue-X band—also referred to as the “beyond EUV” band—within the 2- to 7-nanometer range.

Furthermore, because the entire optical path eliminates tin metal droplet bombardment and plasma sputtering, no metallic debris accumulates within the vacuum chamber. The EUV-FEL source can also generate total EUV power exceeding 10 kilowatts, enabling it to supply more than 1,000 watts to each of ten EUV lithography machines simultaneously without causing tin contamination on molybdenum/silicon (Mo/Si) mirror surfaces.

Examining the broader lithography landscape reveals three distinct technological trajectories: the incremental evolution of EUV, innovations in EUV light sources, and non-EUV alternatives. While all three pathways coexist, incremental EUV development remains the absolute industry mainstay, with the other two serving primarily as strategic maneuvers.

The first trajectory centers on ASML’s incremental iterations, which remain the undisputed core of the industry. ASML continues to firmly dominate the mainstream market. In the first quarter, the company reported net sales of €8.8 billion and a net profit of €2.8 billion; in the second quarter, total net sales reached €9.326 billion with a net profit of €2.918 billion. Meanwhile, ASML has raised its full-year guidance for the second time this year, significantly increasing its 2026 sales forecast to €43–45 billion.

As the premier manufacturer of lithography machines—the most critical equipment in upstream semiconductor manufacturing—ASML’s performance surge reflects an ongoing arms race across the broader technology sector. Tech giants including Amazon, Google, and Microsoft have invested hundreds of billions of dollars in data center infrastructure, triggering massive downstream demand for advanced AI chips. This has accelerated capacity expansion at wafer fabs producing both logic and memory chips, driving demand for lithography equipment to unprecedented levels.

Capacity expansion targets are equally ambitious. The company plans to increase production capacity by 30% in 2027 based on a 2026 baseline of approximately 65 low-NA EUV tools, while also evaluating a further 30% capacity increase in 2028. Similarly, based on a 2026 baseline of roughly 130 immersion DUV tools, ASML intends to expand capacity by 30% in 2027 and is studying an additional 30% increase for 2028.

High-NA EUV lithography machines represent ASML’s next-generation flagship offering. Featuring a 0.55 numerical aperture optical system, these tools achieve 8-nanometer resolution, enabling production processes at 3 nanometers and below while laying the technological groundwork for the 1-nanometer node. The equipment increases circuit patterning precision by 1.7 times through single-exposure imaging, improves image contrast by 40%, and delivers transistor densities 2.9 times higher than previous systems, effectively reducing chip power consumption while enhancing processing speeds.

However, adoption of high-NA EUV has not met expectations due to the steep cost of a single machine—approximately $400 million, nearly double that of traditional EUV systems—and the substantial technical challenges involved in adapting and integrating the equipment into existing production lines. Zhang Xiaoqiang, Senior Vice President and Co-Head of Operations responsible for business development and global operations at TSMC, revealed at a press conference ahead of the annual technology forum