Germany Woos Taiwan: TSMC to set up $11 billion chip-making fab in Dresden, first of its kind in EU
After Intel’s $30 billion investment in a chip-making factory, Germany will also host TSMC and their $11 dollar chip manufacturing fab in Dresden. It looks like the EU, Germany especially is coming up as a favourite for top chip makers
In a significant boost to the European Union’s endeavours to establish a state-of-the-art microchip supply chain, the Taiwan Semiconductor Manufacturing Company (TSMC) unveiled its intentions on Tuesday to construct a $11 billion plant in Germany.
The upcoming facility, set to be erected in Dresden in the eastern region of the country, is scheduled to commence chip production for the automotive sector by the conclusion of 2027, as stated by the company.
TSMC ventures into Europe
This initiative marks TSMC’s inaugural venture onto European soil. TSMC, renowned as the global leader in the production of advanced chips, will collaborate with German enterprises Robert Bosch and Infineon Technologies, alongside NXP Semiconductors from the Netherlands.
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Over the years, European political leaders have actively pursued TSMC’s involvement, as the European Union strives to avert the kinds of supply-chain disruptions that brought segments of its economy to a standstill amid the COVID-19 pandemic.
The European Union (EU) has been exploring methods to attract investment from Taiwanese chip manufacturers without formalizing substantial agreements with the government of Taiwan.
Brussels has remained unswayed by Taipei’s appeals to initiate discussions concerning a bilateral investment agreement. EU officials have publicly asserted that the smooth flow of investment implies that such an agreement is unnecessary. Nevertheless, they privately acknowledge apprehensions about potential repercussions from China. In 2016, the EU committed to negotiating distinct investment agreements with China, Hong Kong, and Taiwan.
However, progress on the EU-Chinese Comprehensive Agreement on Investment (CAI) has been halted due to a dispute centred around human rights sanctions. Consequently, the agreement is currently in a state of geopolitical uncertainty.
Amid this ongoing situation, officials within the Brussels bureaucracy are hesitant to even broach the topic of a potential agreement with Taiwan. There exists a perspective that garnering unanimous support from all 27 member states of the EU for an official trade or investment pact with Taiwan would prove to be an insurmountable challenge.
Germany, the new chip-making destination?
The TSMC deal, while providing a much-needed boost to Germany’s struggling industrial sector, does come with a trade-off. According to reports in German media, the government is set to offer €5 billion in subsidies to support the establishment of the plant.
This development follows Intel’s revelation of intentions to construct a €30 billion chip manufacturing facility in Magdeburg, another city located in the eastern part of Germany. Notably, government subsidies are projected to cover approximately one-third of the total cost of the project.
Despite the positive sentiment, some EU officials offered a note of caution. One official highlighted the delayed inauguration of TSMC’s new factory in the US state of Arizona, partially attributed to a shortage of skilled workforce. Given the intricate and technical nature of the work, coupled with the proliferation of semiconductor plants worldwide, there arises a significant necessity for comprehensive planning concerning skilled training, the officials underscored.
From TSMC to ESMC
The consortium of partners involved in this venture in Germany will establish a new entity named the European Semiconductor Manufacturing Company or ESMC. This collaborative initiative aims to operate the fabrication plant, commonly referred to as a “fab,” under the management of TSMC.
Mathieu Duchatel, the Director of the Asia Program at Institut Montaigne in Paris, has noted that while this development is favourable for Germany and Europe’s industrial aspirations, achieving the objective of doubling the bloc’s chip production market share appears to be an unrealistic target.
He explained that the EU Chips Act offers exceptions to the prohibition of state aid under the condition that companies and governments can demonstrate a fab project to be a “first-of-a-kind” endeavour. This concept, while loosely defined, has significantly relaxed the EU’s traditionally stringent competition law. Duchatel highlighted other comparable investments, such as a silicon carbide substrate plant in Sicily and a factory producing advanced silicon technology in France.
However, Duchatel indicated that a straightforward analysis indicates that these investments would have been improbable in Europe without the EU Chips Act. Yet, they might not suffice to elevate Europe’s market share in comparison to Taiwan. Trends in semiconductor equipment expenditure reveal that the progress made by Taiwan and South Korea in the field is still on the rise.