Elon Musk is “hauling ass” on his “Gigafactory of Compute” project in Memphis. But a whiplash deal, NDAs, and backroom promises made to the city have lawmakers demanding answers.
By Sarah Emerson and Emily Baker-White, Forbes Staff
As Ted Townsend tells it, Elon Musk took roughly a week to decide to build the new supercomputer for his AI startup, xAI, in Memphis. After a whirlwind few days of negotiations in March, Musk and his team — which included representatives from several of his companies — opted for the Tennessee city because it offered ample access to power and the ability to build quickly, said Townsend, president of the Greater Memphis Chamber, an economic growth nonprofit that worked on the deal.
“We’re going to haul ass in Memphis,” Townsend recalls Musk saying of the project, which xAI’s contractors refer to as “Project Colossus.” The multibillion dollar investment, according to Townsend’s estimate, was officially announced last month.
But several members of the Memphis City Council are now urging the city to pump the breaks on the effort amid an upwelling of community concern about the secretive nature of the deal and the data center’s requirements for electricity and water use. The council members alleged earlier this month at a public session that they were sidelined from the decision-making process, which was negotiated under NDA by Musk’s team, the Chamber and local utilities and contractors months before the data center’s details were ever presented to them. The Mayor’s Office and xAI did not respond to requests for comment.
“This is already here and we don’t know anything,” councilmember Rhonda Logan said of the supercomputer project during a recent city council session, stressing the need to “slow it down and understand the impacts.”
Councilmember Pearl Walker told Forbes that the development has caused “hysteria” among her constituents. “People are afraid. They’re afraid of what’s possibly going to happen with the water and they are afraid about the energy supply,” she said at a Wednesday morning public meeting held by the city’s utility, Memphis Light, Gas, and Water (MGLW).
“Memphis has had a history of bad deals … and it is very important that this is a good deal for Memphis. We have to do our due diligence and insist on things that are in our interests and good for us.”
After the whiplash deal was finalized in March, construction began almost immediately on Musk’s new “gigafactory of compute.” The supercomputer will be used to train xAI’s chatbot Grok, a ChatGPT competitor that has increasingly occupied the multi-companied billionaire’s attention. Musk recently troubled shareholders of his electric car company, Tesla, when he redirected shipments of valuable AI chips from Tesla to the generative AI startup he founded in March 2023. The next version of Grok will be trained on 100,000 Nvidia H100 chips, Musk said last month, shortly after announcing that Dell and Super Micro will be providing the server racks.
Rumors of xAI’s data center have been circulating for months, fueled by Musk’s May assertion that he would personally ensure the development of the supercomputer, The Information reported. By then, xAI had already approached Memphis developers and utility officials about locating its data center in their city. Townsend told Forbes that xAI was in talks with seven or eight other sites before choosing Memphis.
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Since March, Townsend’s team made an “Avengers Assemble” effort to “meet Musk and his team’s pace.” He said that several Chamber executives, who negotiated the deal, accepted Musk’s invitation to tour a Tesla factory in Texas during the deliberations. “They were courting us as much as we were courting them,” he told Forbes.
xAI has made verbal pledges to improve Memphis’s public infrastructure in support of the datacenter’s development — a new power substation and a greywater processing facility. xAI has proposed building both facilities itself, though the city’s utility has said no contracts exist for these commitments. Memphis City Councilmember Jerri Green told Forbes that xAI “would eventually turn over the keys” to the city.
Musk has a long history of promising public infrastructure to the places that host his companies — and then underdelivering. In 2018, his tunneling startup the Boring Company vowed to build a mass-transit hyperloop beneath Las Vegas, Nevada. Years later, the slowgoing project has reportedly fallen far short of its goals and been riddled with safety violations. His Chicago and D.C.-to-Baltimore loops, which were part of ambitious deals cut with the cities, now appear dead and were removed from the Boring Company’s website. And in Austin, Texas, though making alleged progress on his claim to create an “ecological paradise” around the Tesla gigafactory, Musk has simultaneously secured an exemption from local environmental rules using a state loophole.
Last month, the Chamber publicly announced the Memphis data center’s location: xAI would be leasing a “former manufacturing site,” a vacant factory that was previously owned by global appliance maker Electrolux. The site is located in Boxtown, a Black Southwest Memphis neighborhood that has long faced neglect from city officials and public utilities — and that has been underrepresented in discussions with xAI to date. At MLGW’s Wednesday meeting, White House environmental justice advisor and Southwest Memphis native LaTricea Adams described the secrecy around the project as “disheartening and embarrassing.”
“Memphians and especially Southwest Memphians and deserve answers … and a public hearing within two weeks of today,” she continued. “We cannot welcome a project that has made a mockery of our public processes.”
Townsend is adamant the deal will be good for Memphis, and Councilmember Green and her colleague Councilmember Jeff Warren also expressed cautious optimism about the project. Per Green, council members will receive more details about the project next week, some of which will take place in a “closed session.”
“I believe there are some things they can’t discuss in public quite yet,” she said.For now, cooling the data center is expected to draw 1.3 million gallons of water per day from the Memphis Aquifer — the county’s primary water supply. (The city consumes roughly 150 million gallons per day.) The arrangement is intended to be temporary, but plans for the new greywater plant have not been finalized, and Memphis authorities told Forbes the city has not conditioned the data center’s permits on its completion. The utility confirmed that Musk’s supercomputer will be allowed to consume aquifer water until the treatment plant is up and running.
Sarah Houston, executive director of Protect Our Aquifer, a local environmental group, noted that the deal was a way to get the water treatment facility the city has wanted for years. The development could be a great opportunity, she said, but would require better transparency from the city, especially given its history in Southwest Memphis. “We want to now ensure that we get the deal right,” she said at the public comment meeting.
Despite Townsend’s enthusiasm about meeting xAI’s energy needs, there are also lingering questions about how much electricity the company will be allowed to pull from the public grid. In recent years, the city has asked residents to reduce power usage or face rolling blackouts to avoid overstretching the power grid. Addressing the Memphis city council, MLGW CEO Doug McGowen said that xAI will initially rely on up to 50 megawatts (MW) of electricity — one megawatt is enough to power roughly 1,000 homes. xAI has requested an eventual capacity of 150 MW, which will require the board approval of regional utility Tennessee Valley Authority (TVA), and the completion of a substation that xAI has committed to building, according to MLGW.
Several local groups have raised alarm at xAI’s power footprint. “We must consider how an industry using such a tremendous amount of energy will further impact communities already overwhelmed with pollution and a high energy burden,” wrote a coalition of Memphis environmental organizations in an open letter last month.
In his presentation, McGowen assured city councilmembers that xAI will be enrolling in TVA’s “demand response” program, which requires industrial power customers to ramp down their operations to avoid outages when energy use is spiking. Townsend told Forbes the supercomputer project has “had engineers from Elon Musk companies and others come into Memphis to talk about what it takes to produce the energy necessary,” adding, “we’re expecting more and more of that.
A TVA spokesperson told Forbes it does not currently have a contract with Musk’s company, and declined to disclose if any AI companies were demand response participants.
Musk is leasing the supercomputer site, a former factory, from real estate firm Phoenix Investors. The local utility told Forbes that the current occupant of the site is an entity called CTC Property LLC. It is likely linked to xAI: CTC Property was incorporated this March in Tennessee at the same time xAI was closing its deal with Memphis. Forbes was unable to determine if the LLC is Musk’s, but he frequently creates new, incognito companies to conceal his business activities. Musk has claimed the supercomputer will be ready by August, and photos shared by the company this month show racks of servers inside a data center.
Townsend and McGowen said xAI is verbally on the hook for both the power substation and greywater treatment plant, which it has asked to construct itself. xAI is pursuing “a parallel path to say, ‘We can build it faster and better,’” McGowen told city councilmembers. MLGW told Forbes that xAI’s parallel design plans “could serve their needs and potentially the needs of others in the area.”
In the past, Musk’s companies have received billions of dollars in tax incentives from states, cities and towns in exchange for building within their limits. But Townsend says that in Memphis, xAI won’t be seeking or receiving tax breaks, at least not yet — the company had not moved forward with a tax incentive from the Memphis Economic Development Growth Engine.
He added, “I can’t speak for what they will want to do in the future. All of those tools and resources are always on the table…and we’ll continue to help connect those resources when necessary.”
