Germany spends big to win $11 billion TSMC chip plant

Taiwanese chipmaker TSMC on Tuesday committed 3.5 billion euros ($3.8 billion) to a factory in Germany, its first in Europe, taking advantage of huge state support for the $11 billion plant as the continent seeks to bring supply chains closer to home.

The plant, which will be TSMC’s third outside of traditional manufacturing bases Taiwan and China, is central to Berlin’s ambition to foster the domestic semiconductor industry its car industry will need to remain globally competitive.

The European Union has approved the European Chips Act, a 43 billion euro subsidy plan to double its chipmaking capacity by 2030, in a bid to catch up with Asia and the United States after shortages and high prices during the COVID-19 pandemic created havoc for the continent’s carmakers and machine builders.

Germany, which has been courting the world’s largest contract chipmaker since 2021, will contribute up to 5 billion euros to the factory in Dresden, capital of the eastern state of Saxony, German officials said.

“Germany is now probably becoming the major location for semiconductor production in Europe,” German Chancellor Olaf Scholz said, less than two months after Intel announced a 30 billion euro plan to build two chip-making plants in the country.

“That is important for the resilience of production structures around the world, but it is also important for the future viability of our European continent, and it is of course particularly important for the future viability of Germany.”

Saxony, center of the former East Germany’s electronics industry, already has several chip “fabs” and is heir to a tradition of precision craftsmanship: in one of the 40 rounds of talks, officials from Taiwan Semiconductor Manufacturing Co (TSMC) were treated to a visit to see exquisitely wrought jewelry in Dresden’s Green Vault museum.

TSMC’s is the single largest investment in Saxony’s history and a boost for conservative state premier Michael Kretschmer, who faces a strong challenge from the anti-immigration, far-right Alternative for Germany party ahead of next year’s regional election.

“This will only work if Germany becomes an immigrant country,” Kretschmer told a news conference, acknowledging that filling the 10,000-odd vacancies that would be created by the factory and its suppliers would take more than the investments in training that he was also planning.

TSMC said it would invest up to 3.499 billion euros into a subsidiary, European Semiconductor Manufacturing Company (ESMC), of which it will own 70%.

Germany’s Bosch and Infineon and the Netherlands’ NXP will each own 10% of the plant, which will make up to 40,000 wafers a month for cars and industrial and home products when it opens in 2017.

The factory will cost around 10 billion euros in total.

Semiconductor maker Wolfspeed too has already taken advantage of the subsidies on offer to set up shop in Germany, as the EU seeks to double to 20% its global market share in semiconductors by 2030.

German Economy Minister Robert Habeck hailed the investment as a vote of confidence in a German economy that has been battered by high energy prices following Russia’s invasion of Ukraine, which triggered a slowdown and fears that Europe’s economic powerhouse could be deindustrialising.

“There is going to be a real ecosystem for semiconductor manufacturing in Germany,” he said. “It’s going to generate orders for the whole sector: for machine builders, for optics manufacturers, for skilled workers.”

TSMC is also investing $40 billion in a new plant in the western US state of Arizona, supporting Washington’s plans for more chipmaking at home, and is building a plant in Japan in a joint venture with Sony.

TSMC said in a statement after a board meeting that approved the German investment that it had also approved a capital injection of not more than $4.5 billion for the Arizona plant as part of the overall $40 billion investment.