Germany chip plants: The EU approves Germany’s proposal to create a European TSMC. The German government will provide €5 billion in state aid to enable the creation of a new joint venture to produce semiconductors. It will be called ESMC (European Semiconductor Manufacturing Company), which is particularly fitting given that the world’s leading chipmaker TSMC is part of the JV, along with German companies Bosch, Infineon and Dutch NXP. The aid was first presented a year ago, and the European Commission took its typical time to approve it.

Aid approved

The considerable aid granted for the project, which will cost €10 billion in total, is the largest approved under the European chip law and the first in Germany. It is also the first European project for TSMC, the world’s largest contract chipmaker. It is expected to improve Europe’s resilience if a chip shortage of the kind experienced during the COVID pandemic were to recur. “This is a real win-win situation,” European Commission President Ursula von der Leyen said at a ceremony in Dresden.

German Chancellor Olaf Scholz said securing access to semiconductors was a “key issue” for Germany. In contrast, Economy Minister Robert Habeck said his government, which has struggled with budgetary issues, would do everything it could to ensure the project goes into production on time in 2027 as planned.

Semiconductors a key issue in the EU

“This €5 billion German measure will strengthen semiconductor manufacturing capacity in Europe, helping us achieve our green and digital transition and creating highly skilled job opportunities,” said Margrethe Vestager, European Vice President for Competition Policy. “The open model of the measure will ensure widespread access to energy-efficient chips, including for smaller companies and start-ups, while limiting any potential distortions of competition.”

Perhaps not everyone will agree with Vestager’s assessment. Huge amounts of public money are being poured by Western governments into anyone who knows a little about chips in an effort to diversify semiconductor manufacturing geographically. This is fueled by anxiety that China might one day invade Taiwan, where most of the cutting-edge chip manufacturing currently takes place.

ESMC plant in Dresden

ESMC’s plant will be located in Dresden, where Infineon already has one and where GlobalFoundries, which will presumably compete directly with ESMC for foundry business, has its own plant. “This investment in Dresden demonstrates TSMC’s commitment to serving our customers’ strategic capabilities and technology needs, and we are excited about this opportunity to deepen our long-standing partnership with Bosch, Infineon and NXP,” TSMC CEO CC Wei said when the JV was first announced. “Europe is a highly promising location for semiconductor innovation, particularly in the automotive and industrial sectors, and we look forward to bringing those innovations to life on our advanced silicon technology with European talent.”

European Chips Act

This is the fourth wave of state aid approved by the EC under the auspices of the European Chips Act, with the bulk of the funds going to Franco-Italian chipmaker STMicroelectronics, including a new JV with GlobalFoundries in France. STMicroelectronics is also active in the industrial sector, so it seems the EU’s strategy is to build on the region’s strengths in this area. State aid approval under Europe’s €43 billion Chips Act has been slow in coming, with only STMicroelectronics projects in France and Italy previously receiving subsidies.

The largest European chip project still awaiting approval is a €30 billion plant planned by Intel in Magdeburg, Germany, which will not start up this year as originally planned. The Intel plant, the only European plant producing the most advanced computer chips, is expected to be completed within four to five years of EU approval.