Germany emulates Biden’s CHIPS act, with successful outcomes, through substantial factory subsidies.

Germany emulates Biden's CHIPS act, with successful outcomes, through substantial factory subsidies.

Germany Becomes a Key Player in the Semiconductor Industry

The semiconductor industry is experiencing a seismic shift as major players look to expand their operations and countries seek to reduce their reliance on foreign suppliers. In a significant move, the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s second-largest chip manufacturer, has announced plans to open a €10 billion ($11 billion) factory in the German city of Dresden. This decision follows closely on the heels of Intel’s announcement of a €30 billion ($32 billion) factory in Magdeburg, marking one of the largest foreign direct investments in Germany’s history.

The German Government’s Subsidy Strategy

These large-scale investments by TSMC and Intel are not without a silver lining for the German government. In an effort to attract critical tech manufacturers and promote domestic chip production, the government has earmarked €20 billion ($22 billion) in subsidies for the semiconductor industry. Germany is not alone in using this strategy; just last year, U.S. President Joe Biden launched the CHIPS and Science Act, which includes $52 billion in subsidies to revitalize the American semiconductor industry. Semiconductor company Micron Technology has also committed $40 billion to chip production in the United States by 2030.

Intel is expected to receive a €10 billion ($11 billion) subsidy from the German government, while TSMC’s Dresden factory will reportedly receive €5 billion ($5.5 billion) in subsidies. These substantial financial incentives have undoubtedly played a crucial role in attracting these major chip manufacturers to Germany.

TSMC’s Plans for Dresden

TSMC is wasting no time in getting started on its Dresden factory. Construction is set to begin in the latter half of 2024, with chip production targeted for 2027. The company has entered into a joint venture with Robert Bosch, Infineon Technologies, and NXP Semiconductors to bring advanced semiconductor manufacturing to Dresden. In this joint venture, TSMC will hold a 70% equity stake, while the other companies will each have a 10% share.

“This investment in Dresden demonstrates TSMC’s commitment to serving our customers’ strategic capacity and technology needs,” said TSMC CEO CC Wei in a statement.

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Similarly, Intel’s expansion aims to secure the semiconductor supply chain within the European Union and make it more resilient. Germany’s Chancellor Olaf Scholz has positioned Germany at the forefront of Europe’s mission to build out chip-making capacity, recognizing the importance of reducing reliance on Chinese trade. These efforts align with Europe’s broader goal of increasing its semiconductor market share to 20% by 2030, up from the current 8%.

Europe’s Emergence in the Global Semiconductor Industry

Geopolitical tensions in chip-making hubs like Taiwan have caused concerns among investors and governments worldwide. Warren Buffett, a veteran investor, even sold his multibillion-dollar stake in TSMC, redirecting his investments to geographies like Japan. In response, the European Union has taken steps to bolster its semiconductor industry. In July, it approved the EU Chips Act, allocating €43 billion ($47 billion) to the sector. The European Commission has also relaxed rules governing aid to companies like Intel and TSMC in support of their expansion plans.

Europe may not directly compete with Asian countries in chip supremacy but has gradually carved out a niche in processors and semiconductors for specific applications, presenting significant opportunities for chip companies. Germany’s commitment to innovation in the automotive and industrial fields aligns perfectly with TSMC’s goals.

“Europe is a highly promising place for semiconductor innovation, particularly in the automotive and industrial fields, and we look forward to bringing those innovations to life on our advanced silicon technology with the talent in Europe,” Wei added.

As the semiconductor landscape shifts towards Germany and Europe, it is clear that strategic investments, subsidies, and technological advancements will play vital roles in reshaping the global chip industry. These developments not only solidify Germany’s position as a key player in semiconductor manufacturing but also contribute to the broader goal of achieving technological self-sufficiency and ensuring resilient supply chains.