Taiwan’s TSMC to Build First European Chip Plant in Germany

BERLIN—Taiwan Semiconductor Manufacturing Co. will build its first European chip factory with support from the German government, the latest move to make the continent less dependent on high-tech imports out of Asia.

TSMC said it had approved a $3.8 billion investment in the factory in Germany, with total investments in the plant expected to exceed 10 billion euros, equivalent to $11 billion, including government support.

A spokeswoman for the German Economics Ministry declined to comment. Any government incentive would require European Union approval.

The widely anticipated decision comes weeks after Berlin said it would pay €10 billion to support a €30 billion investment by Intel, the U.S. chip maker, in two plants in Magdeburg, in eastern Germany—among the biggest foreign investments ever made in the country.

The EU is seeking to double its share of the global semiconductor market as part of a broader effort to strengthen its high-tech supply chains and reduce its dependence on outside suppliers in high-growth industries.

The effort is partly a reaction to the Biden administration’s $53 billion Chips Act, which aims to draw semiconductor investments to the U.S., and its Inflation Reduction Act, which offers incentives for support for green technology investments.

Europe’s attempts to bolster its domestic chip industry also reflect a strategic effort to reduce its reliance on Chinese technology imports.

Since Russia launched its full-scale invasion of Ukraine last year, sending Europe scrambling to replace Moscow as one of its main energy suppliers, governments on the continent have sought ways to insulate themselves from future geopolitical shocks.

One of these would be a decision by China to invade Taiwan, the self-ruled island it considers its own territory, in a scenario that European officials fear could wreak economic havoc on the continent. Another impetus for the change in policy was the Covid-19 pandemic, which severed crucial supply chains in a range of industries.

Last month, Germany released its first-ever strategic policy document on China, saying it would reduce its economy’s exposure to and technological reliance on the country, in part through more state support for high-tech and strategic industries.

TSMC’s German factory will be set up as a joint venture with several EU-based chip companies including Bosch, Infineon and NXP, according to the four companies involved. TSMC said it would run the plant and hold 70% of the joint venture, with the other three companies each holding 10%.

Construction is expected to start in the second half of 2024, with production beginning by the end of 2027, the company said.

TSMC faces challenges including soft consumer demand, rising costs and a shortage of various types of skilled workers. But like Europe and the U.S., it has sought to reduce its vulnerability to geopolitical tensions by spreading its assets around the globe.

The company, which makes chips for a host of major electronics products including those of Apple, is building chip-manufacturing plants outside of its home base, Taiwan, in countries like the U.S. and Japan. 

The new multibillion-dollar German plant will be located in Dresden, in the eastern state of Saxony, which has become a technology and industrial hub since German reunification three decades ago. The plant will specialize in the production of less advanced chips typically used in cars, the company said.

People familiar with TSMC’s plans said government subsidies would help offset regional disadvantages such as higher operating costs and the relative scarcity of skilled workers required to build and run a chip factory in Europe compared with Taiwan.

Skills shortages have been an obstacle to the company’s expansion abroad. Last month it said a planned factory in Arizona would miss its target of starting mass production next year, as people with expertise in building semiconductor facilities were in short supply locally. Industry experts had said TSMC is likely to face a similar talent shortage in Japan and Europe too.

For its plans to invest $40 billion in two chip factories in Arizona, the company is seeking up to $15 billion from the Biden administration, and concerned about the U.S. rules that could require it to share profits from the factories and provide detailed information about operations. The company said on Tuesday that it would raise the Arizona investment to no more than $44.5 billion. 

A push for a manufacturing base in Europe could do TSMC a favor by putting it closer to its major automotive customers in Europe, which have had to close factories and cut production during the pandemic because of a shortage of semiconductors needed for air conditioning, engine control and other functions. This has cost the car companies billions of dollars in lost revenue, prompting them to build a better system by working with chip makers like TSMC.

Write to Yang Jie at [email protected]