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Taiwan Semiconductor Manufacturing Company, in collaboration with three corporate partners, plans to proceed with a €10 billion plant in Germany. This move comes as the world’s largest contract chipmaker aims to diversify globally to address customer concerns about geopolitical tensions.
In a statement on Tuesday, the Taiwan-based company announced its partnership with automotive supplier Bosch and chipmakers Infineon and NXP to construct the factory in Dresden. Taiwan Semiconductor Manufacturing Company’s board of directors approved an equity investment of up to €3.5 billion in European Semiconductor Manufacturing Company GmbH.
A person familiar with the details revealed that the German government has offered €5 billion, half of the total project cost, in subsidies to support the initiative. Germany’s economy ministry stated that the support aligns with the criteria of the European Chips Act and that it has granted an exemption permit for swift construction commencement.
Economy minister Robert Habeck, who advocated for subsidies to attract chipmakers, emphasized that the factory will significantly contribute to securing semiconductor chip supplies for Germany and Europe.
This decision contributes to Berlin’s strategy of becoming a major European hub for chip manufacturing, backed by substantial state support. Meanwhile, the European Union as a whole aims to increase its share of the global semiconductor market from 10% to 20% by the end of the decade.
The announcement follows Intel’s investment in June to construct two wafer fabrication sites in eastern Germany, marking the largest foreign direct investment in the country’s history. Additionally, chipmaker Infineon initiated construction of its chip factory in Dresden in May.
The joint venture, where the Taiwanese company will hold a 70% stake and its European partners will each hold a 10% stake, anticipates commencing construction in the second half of next year. The companies anticipate starting production by the end of 2027, depending on the funding amount from the German government.
“This investment in Dresden demonstrates TSMC’s commitment to meeting our customers’ strategic capacity and technology requirements,” said CC Wei, TSMC’s CEO. “Europe, particularly in the automotive and industrial sectors, presents highly promising opportunities for semiconductor innovation.”
This decision highlights TSMC’s strategic shift to establish multiple regional production hubs instead of relying almost entirely on its manufacturing base in Taiwan. This shift is in response to concerns from governments and chip buyers worldwide regarding potential disruptions in semiconductor supplies if Taiwan were attacked by China.
In 2019, TSMC reluctantly agreed to pressure from Washington to build a fabrication plant, or fab, in the US. However, management now focuses on defending foreign fab investments as necessary to prevent global customers from defecting to competitors like Intel and Samsung.
Aside from the Dresden fab, TSMC invested $40 billion in a new advanced chip complex in Arizona and is pursuing a joint venture in Japan to establish a plant for manufacturing specialty technology. The company is also considering a second plant for niche chips used in various applications, from factory robots to wearables.
The German fab underscores the growing importance of the automotive sector in driving chip demand. This demand is fueled by the rise of electric vehicles and autonomous driving applications. In the second quarter, automotive applications accounted for 8% of TSMC’s revenue, compared to 2% three years ago. European customers had requested local production investment as early as 2021, during a global auto chip shortage, but TSMC took substantial time to review the project.
Despite concerns about the lack of qualified workers, as well as shortfalls in materials, tools, and services, the company chose to invest in Germany. The region, known as Silicon Saxony due to its concentration of semiconductor plants, possesses a robust supply chain ecosystem and labor pool.
During TSMC’s annual general meeting in June, Mark Liu, the company’s chair, expressed concerns about these two factors. However, he stated that the German government has promised to address these challenges within a short timeframe.
A similar lack of skilled labor has prompted TSMC to postpone the start of production in Arizona to 2025.
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