In the spring of 2026, Elon Musk officially unveiled the TeraFab chip manufacturing plan. His reasoning was quite simple: SpaceX and Tesla would need at least 1 terawatt of computing power in the future, a scale exceeding 10 times the current global chip supply capacity.
Then this month, he seemed to place an even bigger bet: entering the lithography machine market.
01 TeraFab Sets Its Sights on Lithography Machines
A blogger posted information suggesting that, based on TeraFab's announcement, Elon Musk seems to be pursuing the FEL (Free Electron Laser) route to disrupt the monopoly of traditional EUV.
Musk later posted "FEL FTW" (FEL For The Win) on a social platform, seen by the outside world as a tacit confirmation of this speculation. Combined with TeraFab's elongated factory design and Musk's statements, the FEL technical route has become the hottest speculative direction. According to previous plans, TeraFab will build an integrated chip manufacturing base, producing both logic chips and memory chips, and integrating processes such as lithography, packaging, and testing all within the same factory.
Coincidentally, in July of last year, semiconductor startup xLight announced the completion of a $40 million Series B oversubscribed financing. This funding will focus on FEL R&D, aiming to break the physical limits of existing EUV lithography technology and provide key light source support for the mass production of 2nm and more advanced node chips. Notably, in March last year, former Intel CEO Pat Gelsinger posted on LinkedIn that he had joined xLight as Executive Chairman.
The unique characteristics of FEL technology itself sparked heated discussion within the industry.
02 FEL: Offering a Different Solution for EUV
In the entire AI chip supply chain, Dutch company ASML is currently the only company in the world capable of manufacturing EUV equipment, holding over 90% of the lithography equipment market share.
The company's EUV lithography machine uses a Laser-Produced Plasma (LPP) EUV light source. The principle involves bombarding tin metal droplets ejected from a nozzle at a speed of 50,000 drops per second with a 30kW power carbon dioxide laser, striking each droplet twice (requiring 100,000 laser pulses per second) to vaporize them into plasma. EUV light at a wavelength of 13.5nm is obtained through transitions between energy levels of highly charged tin ions.
Although LPP technology enabled the commercialization of EUV lithography, its inherent physical limitations are becoming increasingly pronounced as process nodes advance.
First is the bottleneck in energy conversion efficiency. In the explanation above, there is a key term: 13.5nm wavelength. This means compared to the 193nm light source used in current mainstream DUV lithography machines, the EUV light source is one-fifteenth the wavelength, allowing for smaller channels to be etched on silicon wafers. Currently, ASML primarily uses carbon dioxide lasers from American company Cymer to excite tin plasma to produce 13.5nm extreme ultraviolet light. The conversion efficiency from the laser driver to tin plasma achieved by the company's technology is about 5.5%. Combined with the electrical-to-optical efficiency of the carbon dioxide laser itself (~10%), and collection mirror transmission losses, the actual EUV light utilization from the power grid to the wafer is generally less than 0.5%.
Second is tin debris contamination. During plasma generation, rapidly sputtering tin ions and neutral debris continuously deposit on the surface of the extremely expensive multilayer collection mirrors, causing reflectivity to decline and shortening lifespan.
Third is the power ceiling. Current LPP-EUV light sources have reached a maximum EUV power of around 600W. However, to meet the manufacturing demands for the 2nm node and below, the required EUV power needs to exceed 1.5 kilowatts. Current 500-600W specification EUV systems primarily rely on multiple patterning to accumulate photon dose and offset the shortfall in source power.
In February this year, ASML announced plans, before 2030, to increase the productivity of next-generation High-NA EUV lithography machines by 50% by introducing a new, more powerful light source system capable of 1000W. By 2030, the wafer processing capacity of a single EUV tool is expected to increase from 220 wafers per hour to 330 wafers per hour.
Compared to LPP technology, FEL does not rely on plasma conversion. FEL stands for Free Electron Laser. The entire light source system involves an electron gun emitting an initial electron beam, which is accelerated to nearly the speed of light by a linear accelerator (advanced solutions often use superconducting linear accelerators). The high-density electron beam in a relativistic state enters an undulator consisting of periodic alternating magnetic fields. Electrons oscillate transversely under the magnetic field and produce spontaneous radiation; the radiation field continuously modulates the electron beam, promoting the formation of microbunching with a period equal to the radiation wavelength. The microbunched electrons produce coherent radiation and form positive feedback, causing the radiation intensity to amplify exponentially. Combined with techniques like seeding injection, the system can ultimately output EUV beams with stable wavelengths.
Therefore, the extreme ultraviolet light wavelength generated by FEL is considered a candidate band for next-generation lithography. This band is shorter than the current 13.5nm EUV wavelength, approaching the soft X-ray range. According to public information, xLight's technical goal is precise tuning within the 2-7nm Blue-X band (also known as the "Beyond EUV" band).
Moreover, there is no process of tin droplet bombardment or plasma sputtering inside the entire optical path; the vacuum chamber of the optical path does not generate metal debris deposition. EUV-FEL light sources can also produce high EUV power exceeding 10 kW, capable of simultaneously supplying over 1000W of EUV power to 10 EUV lithography machines without causing tin contamination to the Mo/Si reflecting mirrors.
03 Has the Game Changed for Lithography Machines?
Peeling back the shell of the lithography industry reveals three clear technological trajectories: the incremental iteration of EUV, innovation in EUV light sources, and non-EUV alternative solutions. The three coexist, but EUV iteration remains the absolute protagonist, while the latter two are more like "variations" in the chess game.
First Camp: ASML's Incremental Iteration, Still the Absolute Protagonist.
ASML still firmly controls the mainstream track. Net sales for Q1 this year were €8.8 billion with a net profit of €2.8 billion; Q2 total net sales were €9.326 billion with a net profit of €2.918 billion. Meanwhile, ASML significantly raised its full-year performance guidance for the second time this year, sharply increasing its 2026 full-year sales forecast to €43-45 billion.
As the most critical upstream equipment supplier for wafer manufacturing, ASML's surging performance reflects an arms race unfolding across the entire tech industry. Giants including Amazon, Google, and Microsoft are investing hundreds of billions of dollars in infrastructure, igniting massive downstream demand for high-end AI chips. Foundries, including those for logic and memory, are accelerating capacity expansion, pushing demand for lithography machines to a fever pitch.
Capacity expansion is equally aggressive. The company plans, based on its 2026 capacity plan of approximately 65 low numerical aperture (Low-NA) EUV tools, to increase capacity by 30% in 2027 and is studying a further 30% increase in 2028. Simultaneously, it plans, based on its 2026 capacity plan of about 130 immersion DUV tools, to increase capacity by 30% in 2027 and is studying another 30% increase in 2028.
High-NA EUV is ASML's next-generation "ace." It uses a 0.55 numerical aperture optical system, enabling 8nm resolution, supporting 3nm and below process technologies, and providing technical reserves for the 1nm node. The equipment improves circuit etch fineness by 1.7 times through single exposure, increases imaging contrast by 40%, achieves a transistor density 2.9 times that of the previous system, and effectively reduces chip power consumption while improving computing speed.
However, as a single High-NA EUV tool costs approximately $400 million, nearly double that of traditional EUV lithography machines, and there are significant technical difficulties in production line adaptation and integration, the application of High-NA EUV is not ideal. TSMC's Senior Vice President in charge of Business Development & Global Operations and Deputy Co-COO, Dr. C.C. Wei, revealed to the media at a press conference before the annual Technology Symposium that the company currently has no plans to deploy ASML's High-NA EUV equipment designed for next-generation processors.
Second Camp: Light Source Innovation – A Precise Strike at ASML's "Heart."
This is the FEL route chosen by Musk's TeraFab and xLight. It does not directly challenge ASML's dominance in optical systems but seeks a breakthrough in the light source component. This means chip manufacturers do not need to extensively replace existing supporting equipment like lithography, etching, deposition, and inspection tools; they only need to replace the light source system to obtain significant improvements in capacity and cost—a "plug-and-play" upgrade path highly attractive to fabs.
xLight claims its FEL system's power is over 4 times that of existing systems. Deploying xLight FEL in existing US fabs could increase production efficiency by 50% and eliminate the need for consumables like tin or hydrogen; deploying xLight FEL in new fabs could increase production efficiency by 100%. This would enable manufacturers to produce chips with smaller feature sizes and higher efficiency, extending next-generation lithography technology.
If the light source can be independently replaced, ASML's pricing power would be structurally weakened. However, it's worth noting that ASML considered the FEL EUV light source route as early as ten years ago but ultimately deemed the risk too high and pursued the LPP EUV light source instead. Therefore, whether and when the mass-production challenges of FEL can be overcome may still require time to explore.
Additionally, there are other light source routes. For example, Substrate, a San Francisco startup founded in 2022, chose a particle accelerator-based X-ray lithography path. China is also advancing its own EUV light source technology. According to public reports, multiple domestic teams are exploring different technical paths, including reverse engineering of existing LPP technology, with the goal of achieving breakthroughs between 2028 and 2030.
Among them, institutions like Harbin Institute of Technology are attempting to develop lithography solutions based on Laser-Induced Discharge Plasma (LDP). The principle involves evaporating tin between electrodes and then exciting plasma through high-voltage discharge. The structure is simpler and requires less space than LPP, but the emitted power density is limited, and whether it can support mass production remains questionable.
Third Camp: Non-Traditional Solutions Completely Bypassing EUV, Growing in the Shadows.
Nanoimprint Lithography (NIL) is the one with the fastest commercialization progress among these. By directly imprinting patterns using physical templates, NIL eliminates the need for complex optical systems and light sources, with equipment costs and power consumption far lower than EUV. Japanese company Canon is already promoting the mass production application of NIL in the memory chip field. Although its resolution cannot yet compete with High-NA EUV, in the memory chip market where line width requirements are relatively relaxed, NIL has demonstrated cost competitiveness.
Electron Beam Lithography (EBL) takes a completely different path. Essentially a direct-write technology, it uses a focused electron beam to expose points sequentially on a resist, precisely drawing patterns through electromagnetic control. This method does not rely on photomasks and offers significant advantages during the R&D phase with frequent design iterations. It is especially suitable for scenarios like quantum devices, novel material structures, prototype chips, and photomask making.
However, so far, electron beam lithography has long existed in the realms of scientific research and small-scale applications. The reason is not its resolution, but its efficiency. Electron beam direct writing is a serial exposure process; even with high single-point accuracy, overall throughput capability remains limited, which is unacceptable for wafer-scale mass production. Yet, in the R&D stage, this "slowness" trades for extremely high flexibility. For research teams needing to repeatedly modify layouts, verify physical models, or explore new device structures, eliminating the mask-making process is often more important than increasing exposure speed.
Today, EUV increasingly resembles a veteran who has been running for a long time. The technical bottlenecks are real, but so is the ecosystem network that ASML has woven around it over two decades. For new players to get on the field, just running fast themselves isn't enough—they need to get the entire track to change the rules along with them.
Musk's TeraFab plan is essentially a high-stakes gamble: betting that FEL can move from the lab to the fab, betting that "plug-and-play" light source replacement can circumvent ASML's patent barriers, and betting that the demand for 1 terawatt of computing power is sufficient to support an entirely new supply chain.
The answer to how next-generation lithography technology should proceed may not be too far off. But one thing is certain—when Musk typed "FEL FTW" on a social platform, the lithography machine business was no longer a game for ASML alone.
This article is from the WeChat public account "Semiconductor Industry Insights" (ID: ICViews), author: Feng Ning.
