According to Ted Townsend, Elon Musk decided within a week to build a new supercomputer for his AI startup xAI in Memphis. After intense negotiations in March, Musk chose the Tennessee city because it offered access to abundant electricity and could move construction quickly, said Townsend, president of the Greater Memphis Chamber, which helped broker the deal. “We’re going to really accelerate in Memphis,” Townsend recalled Musk saying about the project, which xAI calls “Project Colossus.” The name comes from “Colossus: The Forbin Project,” a 1970 film about an unruly AI that controls America’s nuclear arsenal. Townsend valued the investment at several billion dollars, which was officially announced last month. Now some members of the Memphis City Council are pushing to end the project amid concerns about the deal’s secretive nature and high demands on electricity and water usage. City Council members told the meeting that they had pulled out of the decision-making process negotiated under the NDA before details of the data center were tabled between Musk’s team, the chamber and local utilities and contractors. The mayor’s office and xAI did not respond to requests for comment.
“It’s already here and we don’t know anything about it,” said Councilwoman Rhonda Logan, stressing the need to slow down the project and understand the implications. Councilwoman Pearl Walker said the development had caused “frenzy” among her constituents. “People are scared. They fear potential impacts to water and energy supplies,” he said at a public meeting of the city’s public utilities, Memphis Light, Gas and Water (MLGW). “Memphis has a history of bad deals … and it’s really important that this is a good deal for Memphis. We have to do our due diligence and emphasize the things that we like and that are beneficial to us.
Construction on Musk’s new “gigafactory of computing” began almost immediately after the deal closed in March. The supercomputer will be used to train xAI’s chatbot Croc, a competitor to ChatGPT, which Musk is focusing more on. Recently, Musk caused concern among shareholders of his electric car maker, Tesla, when he transferred valuable AI chips from Tesla to his AI startup. The next version of Grok will be trained on 100,000 Nvidia H100 chips, Musk said last month after announcing that it would supply Dell and Super Micro server racks.
Rumors about xAI’s data center have been circulating for months, bolstered by Musk’s statement in May that he would personally confirm the supercomputer’s construction. By then, xAI had already contacted Memphis developers and utility officials about locating a data center in the city. Townsend said xAI negotiated with seven or eight locations before deciding on Memphis.
Since March, Townsend’s team has gone to great lengths to keep up with Musk and his team’s momentum. During the talks, some chamber executives toured a Tesla factory in Texas. Townsend said, “We’re as honored as we’ve embraced them.” xAI has proposed building both facilities itself, though the city’s utilities said there are no contracts for those commitments. Councilwoman Gerry Green said xAI will “ultimately hand over the keys to the city.”
In the past, Musk has often promised public infrastructure and then failed to deliver. In 2018, his subway company, The Boring Company, promised to build a Hyperloop for mass transit beneath Las Vegas. Years later, the slow-moving project is far short of its goals and plagued by security breaches. Plans for a Chicago and DC-Baltimore connection failed and were removed from the Boring Company website. While making progress on his claim to build an “eco-paradise” around the Tesla Gigafactory in Austin, Texas, Musk simultaneously secured an exemption from local environmental regulations through a state loophole.
Last month, the chamber publicly announced the location of the Memphis data center: xAI will lease a “former manufacturing facility,” a vacant factory formerly owned by global appliance maker Electrolux. The location is in Boxtown, a less black neighborhood in southwest Memphis that has not been adequately considered in discussions with xAI. At Wednesday’s MLGW meeting, White House environmental justice adviser and Southwest Memphis native Latricia Adams described the project’s secrecy as “unsatisfying and embarrassing.” “Memphians, especially the people of Southwest Memphis, deserve answers … and deserve a public hearing within the next two weeks,” he said. “We cannot welcome a plan that makes a mockery of our public processes.” Councilwoman Greene and her fellow Councilman Jeff Warren also expressed cautious optimism that Townsend’s deal is good for Memphis. Councilors are expected to receive more details on the plan next week, partly in “closed session”.
“I think there are still some things that can’t be discussed publicly,” he said. Currently, the data center is expected to use 1.3 million gallons of water per day from the Memphis Aquifer, the city’s main water supply. (The city uses about 150 million gallons daily.) The arrangement is temporary, but plans for the new gray water treatment plant have not yet been finalized, and city officials told Forbes that permits for the data center are not tied to its completion. . Utilities confirmed Musk’s supercomputer will be allowed to use the aquifer until the refinery is up and running.
Sarah Houston, executive director of Protect Our Aquifer, a local environmental group, pointed out that the deal represents an opportunity to get a water treatment plant that the city has needed for years. Development may be a great opportunity, but more transparency is needed from the city, especially given its history in Southwest Memphis. “We want to make sure we get the deal right now,” he told the public meeting.
Despite Townsend’s enthusiasm for xAI’s energy needs, there are questions about the amount of electricity the company will be allowed to purchase from the public grid. In recent years, city dwellers have been asked to reduce electricity consumption or avoid overloading the grid in the face of blackouts. MLGW CEO Doug McGowen told City Council that xAI will initially purchase 50 megawatts (MW) of electricity — one megawatt is enough to power about 1,000 homes. xAI has requested 150 megawatts of future capacity, which requires approval from the Tennessee Valley Authority (DVA), a regional utility authority, and construction of a substation that xAI will build itself, according to MLGW. Several local groups have raised concerns about xAI’s energy consumption. “We must consider that an industry that uses more energy will further burden communities already burdened by pollution and high energy costs,” the consortium of environmental groups wrote in an open letter last month.
In his presentation, McGowen assured councilors that xAI will participate in TVA’s “demand response” program, which requires industrial electricity customers to reduce their generation to avoid outages during peak loads. Townsend said the supercomputer program “brought engineers from Elon Musk’s companies and others to Memphis to talk about what it would take to create the power we need” and added that “we expect more of it.”
A TVA spokeswoman said there was no current deal with Musk’s company and declined to say whether AI companies would participate in the demand response program. He leased the data center, a former factory, from real estate firm Phoenix Investors. The site’s current tenant is a company called CTC Property LLC, a local utility told Forbes. It could be linked to xAI: CTC property was established in Tennessee in March when xAI closed its deal with Memphis. Forbes could not determine if the LLC is Musk’s company, but he often creates new, secret entities to hide his business activities. Musk said the supercomputer would be operational by August, and photos the company shared this month show racks of servers in the data center.
xAI is verbally responsible for the substation and gray water treatment plant that Townsend and McGowen themselves want to build. xAI is “taking a parallel path to say, ‘We can build it faster and better,'” McGowan told councilors. MLGW explained that xAI’s parallel programming “can meet their needs and the needs of others in the region.”
In the past, Musk’s companies have received billions of dollars in tax incentives from states, cities and towns to build within their borders. However, Townsend said that xAI will not currently apply for or receive any tax incentives in Memphis — the company has not yet applied for tax incentives from the Memphis Economic Development Engine. He added: “I cannot say what they want in the future. All of these tools and resources are always on the table … and we continue to help connect these resources as needed.”