Macroeconomic difficulties do not prevent the German authorities from soberly assessing the risks associated with the local industry’s dependence on the supply of semiconductor components, as the pandemic with its chip shortages has learned certain lessons. By 2027, the federal government will provide up to 20 billion euros in funding for companies that set up chip production facilities in Germany.
Bloomberg comes to this conclusion and summarizes the available information on Germany’s budget plans up to 2027. The source of funding for these projects will be the so-called Climate and Transformation Fund, which was originally set up to cover the needs of decarbonizing the national economy, but given a budget deficit, it could well be adapted to fund projects to build up semiconductor industry companies in Germany. Incidentally, most of the subsidies will go to foreign companies, but German officials don’t seem too worried about that. The said fund will manage funds of up to 180 billion euros, only part of which will be used to boost chip production in Germany.
According to reports, 10 billion will flow to the Intel Corporation by 2027, which will build two factories near Magdeburg to process silicon wafers. Government grants will thus cover about a third of all expenses of the American group. This is consistent with the capacity expansion business model being pursued by current Intel CEO Patrick Gelsinger.
Recall that at a recent quarterly reporting conference, TSMC representatives did not hide their intentions to set up a custom chip manufacturing company in Germany for the needs of the local automotive industry. Focusing on sophisticated lithography in this case slightly reduces the project’s budget, leading Bloomberg to believe that if TSMC’s total cost is €10 billion, half of that amount will be covered by government grants.
Around one billion euros could be used to fund Infineon’s chip production facility near Dresden, with a total construction budget of up to 5 billion euros. A further 750 million euros could be made available to a joint venture between ZF and Wolfspeed for the production of power semiconductor components based on silicon carbide, which are in demand in the automotive industry. Bosch and GlobalFoundries are also ready to expand their chip manufacturing facilities in Germany. However, they are keeping a low profile about their plans, so that the 20 billion euros in grants will quickly find grateful recipients.
While the German initiative cannot match the scale of the US subsidy program of more than $52 billion envisaged under the so-called “chip law” for the next five years, Japan has provided only $14 billion for the next few years, and India expects $10 billion in subsidies to attract investors to set up local chip manufacturing plants. EU authorities are generally willing to support the local semiconductor industry, providing €43 billion by the end of the decade, but Germany unwittingly assigns itself a central role with its separate programme. Keep in mind that Poland, France, Italy and Spain are also applying for EU grants to set up local semiconductor companies.