[Chiptalk] "Give More Semiconductor Factory Subsidies" Fierce Tug-of-War Between Germany, Intel, and TSMC

The German government and global semiconductor manufacturers are engaged in a fierce "tug-of-war" over the scale of subsidies provided for factory construction, attracting the attention of semiconductor companies worldwide. As conflicts between governments and companies intensify over securing semiconductor manufacturing facilities?a critical sector highlighted by supply chain issues amid the US-China hegemony dispute and the Ukraine war?the case of Germany, the economic center of Europe, is expected to have a significant impact on all European Union (EU) member states.

Global semiconductor companies such as US-based Intel and Taiwan's TSMC have also identified Germany as their largest hub in Europe and are negotiating with the German government, but a consensus has yet to be reached easily. Following the US's initiation of a $39 billion (approximately 50.8 trillion KRW) subsidy payment process, attention is focused on how quickly Germany can finalize negotiations and secure semiconductor manufacturing facilities.

According to Bloomberg News and The New York Times (NYT) on the 16th (local time), semiconductor companies negotiating subsidies with the German government for factory construction within the country include Intel, TSMC, US power semiconductor company Wolfspeed, and Germany's Infineon. Germany, responding to the intensified semiconductor hegemony competition triggered by COVID-19, has been actively securing investments from manufacturers. The NYT reported, "Germany wants many semiconductor manufacturers, but the cost will by no means be cheap," adding, "Each (factory construction) project is conditional on government subsidies."

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Among the companies negotiating with the German government, Intel has promised the largest investment. In March last year, Intel announced plans to build a semiconductor factory in Magdeburg, Germany, investing 17 billion euros (approximately 24.5 trillion KRW). The German government also pledged to provide 6.8 billion euros in subsidies. However, due to concerns over economic recession and the impact of the Ukraine war, construction costs, including energy expenses, surged. Intel stated that the cost of building the factory increased to 30 billion euros and requested additional subsidies from Germany. The groundbreaking, initially scheduled for the end of last year, was postponed.

Recent reports indicate that Intel is requesting the German government to increase subsidies to 10 billion euros. It is said that Intel is asking for an additional 4 to 5 billion euros on top of the initially agreed subsidies. The German government has responded that subsidy increases are only possible if there is an expansion of investment. However, the German government is also aware of the significant rise in costs and has reportedly been discussing the matter internally, according to foreign media.

Not only Intel but also TSMC has been engaged in long-term subsidy negotiations with the German government. Since first hinting at the possibility of building a factory in Germany in 2021, TSMC has not disclosed any confirmed investment plans or scale. After stating in December last year that "there are no concrete plans," TSMC CEO C.C. Wei mentioned in January this year that they are discussing with customers and partners about building a semiconductor factory for automotive chips in Europe, based on customer demand and government subsidy support.

[Image source=Reuters Yonhap News]

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According to multiple reports citing sources, TSMC has been considering building a factory in Dresden, Germany, and has been conducting local surveys and subsidy negotiations since last year. Last month, foreign media reported that officials from Saxony, Germany, visited Taiwan to negotiate with TSMC, and TSMC mentioned that labor costs in Germany are higher than in other regions, inevitably increasing construction costs, which they are addressing in subsidy negotiations.

As CEO Wei indicated, if TSMC builds the Dresden factory, it is expected to focus on producing automotive semiconductors. The semiconductors produced there will likely be supplied to automotive manufacturers in Germany and across Europe. With automakers accelerating the transition to electric vehicles, semiconductor demand is expected to surge. TSMC is anticipated to make related announcements at its 2023 first-quarter corporate briefing scheduled for the 20th.

Some companies have already confirmed investments in Germany and are negotiating subsidies with the government. Wolfspeed announced last month that it will build a factory in Saarland with an investment of 3 billion euros and start operations in 2027. The announcement received significant government attention, with German Chancellor Olaf Scholz attending the event. At the time of the announcement, Wolfspeed expressed in a local media interview that it hopes to receive subsidies covering 20% of the investment cost, suggesting that German government subsidy support is expected. Infineon also confirmed in February its largest-ever semiconductor factory investment of 5 billion euros in Dresden. Foreign media reported that Infineon is requesting 1 billion euros in subsidies from the government.

Germany requires EU approval to provide subsidies to semiconductor companies. This is because EU member states must obtain EU authorization to prevent market distortions when granting subsidies. With the EU expected to finalize approval of a 43 billion euro semiconductor support law soon, attention is focused on whether negotiations between Germany and semiconductor companies will accelerate. The EU currently aims to increase its semiconductor industry market share from less than 10% to over 20% by 2030.

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