TSMC to build US$11 billion chip manufacturing plant in Germany

South China Morning Post
Wed, August 9, 2023 

In a huge boon for European Union efforts to build a cutting-edge microchip supply chain, the Taiwan Semiconductor Manufacturing Company announced plans on Tuesday for a €10 billion (US$11 billion) plant in Germany.

The facility, to be built in Dresden in the country's east, will begin producing chips for the automotive sector by the end of 2027, the company said.

The project marks the first foray onto European turf for TSMC, the world's leading maker of advanced chips. The firm will work in conjunction with German companies Robert Bosch and Infineon Technologies as well as NXP Semiconductors of the Netherlands.

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European political chiefs have courted TSMC for years, as the EU tries to avoid the sorts of supply-chain bottlenecks that paralysed parts of its economy during the coronavirus pandemic.

Michael Kretschmer (left), the minister president of Saxon and Dirk Hilbert, the lord mayor of Dresden, during the announcement of TSMC's planned semiconductor plant. Photo: dpa alt=Michael Kretschmer (left), the minister president of Saxon and Dirk Hilbert, the lord mayor of Dresden, during the announcement of TSMC's planned semiconductor plant. Photo: dpa>

The bloc has been seeking ways to attract Taiwanese chip investment without cutting major deals with the self-ruled island's government.

Brussels has been unmoved by Taipei's requests to launch talks over a bilateral investment agreement, with EU officials publicly arguing that free-flowing investment shows a deal is not required.

They privately admit, however, that they are concerned about retaliation from China. In 2016, Brussels committed to negotiating separate investment deals with China, Hong Kong and Taiwan.

But the EU-Chinese Comprehensive Agreement on Investment (CAI) is locked in geopolitical purgatory after a row over human rights sanctions.

While that remains unresolved, Brussels bureaucrats are reluctant to even float the idea of a Taiwanese pact. There is a view that it would be impossible to get all 27 EU member states to support an official trade or investment pact with Taiwan.
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For Germany, the TSMC deal offers a shot in the arm for its flagging industrial engine - but at a cost. German media reported that the government will provide €5 billion in subsidies for the plant.

It comes after Intel announced plans for a €30 billion chip factory in Magdeburg, another city in Germany's east, with a third of the cost expected to be covered by government subsidies.

Berlin is taking advantage of Brussels' loosened rules on providing state aid at a time when its anaemic economy is expected to grow by just 0.3 per cent this year, EU data estimated.

On Sunday, it was announced that industrial production in Germany - the EU's largest economy - dropped by more than economists had predicted in June.

The deal also lifts the EU's efforts to build out an indigenous semiconductor industry, as it hopes to sidestep the US-China tech war and shore up its own chip supply in case of future disruptions in the Taiwan Strait.

Since Russia's invasion of Ukraine 18 months ago, significant political capital has been invested in making the EU's supply chains more resilient. As part of this approach, it is looking to reduce its dependencies on China and other trading partners for key technologies.

Now, financial capital from EU members is starting to follow. The TSMC investment comes two weeks after the bloc finally approved its Chips Act, aimed at "doubling the EU's global market share in semiconductors, from 10 per cent now to at least 20 per cent by 2030".

"Very pleased about the decision of TSMC to invest - together with 3 EU major semiconductor companies - into building a new semiconductor FAB in EU," EU internal market chief Thierry Breton posted on social media.

"It's the EU Chips Act in motion - bringing stronger security of supply for Europe, including for EU's automotive industry," Breton added.

Other EU officials struck a cautionary tone, one noting the delay in the opening of TSMC's new factory in the US state of Arizona due in part to a lack of skilled workers.

Given the highly technical nature of the work and the fact that plants are set to spring up around the world, serious thought would need to be given to skilled training, they noted.

The venture partners in Germany will create a new entity, European Semiconductor Manufacturing Company, with the fab - industry shorthand for a fabrication plant - to be operated by TSMC.

Mathieu Duchatel, director of the Asia programme at Institut Montaigne in Paris, said that the news was good for Germany and Europe's industrial ambitions, but suggested that the goal of doubling the bloc's market share of chip production remained unrealistic.

"The EU Chips Act authorises exemptions to the prohibition of state aid if companies and governments demonstrate that a fab project is 'first-of-a-kind', a loose concept that has considerably relaxed the EU's notoriously strict competition law," he wrote in a recent post on Euractiv, an EU news portal.

Other such investments include a silicon carbide substrate plant on the Italian island of Sicily and a factory producing an ultra-thin silicon technology for hi-tech chip engineering in France.

"Quick maths tell a blunt story: without the EU Chips Act, these investments would have been unlikely to take place in Europe, but they won't be enough to increase Europe's market share vis-a-vis Taiwan," Duchatel wrote.

"Trends in semiconductor equipment spending tend to show that Taiwan's and South Korea's advance is in fact still increasing."

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