The German government is pledging billions of euros in order to secure TSMC’s first chip factory in the European Union.

Taiwanese chipmaker TSMC announced it will invest 3.5 billion euros (£3bn or $3.8bn) in a factory in Dresden, capital of the eastern state of Saxony in Germany, alongside a number of other industrial partners.

The announcement is a major victory for the German government and the European Union as well, both of which have been lobbying hard for a number of years to land a major chip factory in the bloc.

Dresden factory

But the new fab is going to cost the German taxpayer a pretty penny in subsidies.

TSMC has committed 3.499 billion euros (£3 billion or $3.8 billion) to the Dresden factory subsidiary, which has been dubbed the European Semiconductor Manufacturing Company (ESMC) GmbH.

The German government meanwhile will contribute up to 5 billion euros (£4.3 billion or $5.5bn) to the factory in Dresden.

Germany’s Bosch and Infineon Technologies, as well as the Netherlands’ NXP Semiconductors will also invest in the fab, and will each own 10 percent of the plant.

TSMC will own 70 percent of the plant, and the fab will be operated by TSMC.

The factory will cost around 10 billion euros (£8.6 billion or $11bn) in total, depending on the “strong support from the European Union and German government.”

TSMC said the ESMC fab in Dresden marks a “significant step towards construction of a 300mm fab to support the future capacity needs of the fast-growing automotive and industrial sectors, with the final investment decision pending confirmation of the level of public funding for this project.”

It will make up to 40,000 300mm wafers a month for cars, industrial and home products.

ESMC aims to begin construction of the fab in the second half of 2024, with production slated to begin by the end of 2027. It is expected to create about 2,000 direct high-tech professional jobs.

“This investment in Dresden demonstrates TSMC’s commitment to serving our customers’ strategic capacity and technology needs, and we are excited at this opportunity to deepen our long-standing partnership with Bosch, Infineon, and NXP,” said Dr. CC Wei, CEO of TSMC.

“Europe is a highly promising place for semiconductor innovation, particularly in the automotive and industrial fields, and we look forward to bringing those innovations to life on our advanced silicon technology with the talent in Europe,” Dr Wei added.

“Germany is now probably becoming the major location for semiconductor production in Europe,” German Chancellor Olaf Scholz was quoted as saying by Reuters.

It come after Intel announced a 30 billion euro plan to build two chip-making plants in the country.

“That is important for the resilience of production structures around the world, but it is also important for the future viability of our European continent, and it is of course particularly important for the future viability of Germany,” said Chancellor Scholz.

Charm offensive

The project is planned under the framework of the European Chips Act – the 43 billion euro subsidy plan to double the bloc’s chipmaking capacity by 2030.

Indeed the EU wants to produce at least 20 percent of the world’s cutting-edge semiconductors by the end of the decade.

It is an attempt to catch up with Asia and the United States, after severe chip shortages during the Covid-19 pandemic badly impacted carmakers and machine builders around the world.

The Dreden fab will be TSMC’s third plant outside of its traditional manufacturing bases in Taiwan and China (new plants are being constructed in Arizona and Japan).

Confirmation of the Dreden fab comes after the Taiwanese chip maker resisted the European charm offensive for a number of years.

EU hopes were raised in April 2021, when TSMC pledged a huge $100 billion into bolster advanced chip making over the next three years in order to keep up with rising demand around the world.

But in July 2021 TSMC’s founder, Morris Chang, said plans by the US and EU to bring semiconductor production into their own countries could result in a costly, unworkable system.

There was also a report that TSMC was considering building its first European semiconductor plant in Germany. But TSMC dismissed this in 2021, when it said reports of it eyeing building chip factories in Germany was “too early to say”.

In June 2022 TSMC again dashed European hopes of constructing a chip factory in the bloc, when it said it had no concrete plans for factories in Europe.

But in December the FT reported that advanced talks were underway to build its first European plant in Dresden.

Other expansions

And it is not just Germany that TSMC is expanding to.

TSMC is also investing $40 billion in a new plant in Arizona, supporting the US Chips Act which plans for more chip-making in the US.

TSMC is also building a plant in Japan in a joint venture with Sony.

TSMC said in a statement that it had also approved a capital injection of no more than $4.5 billion for the Arizona plant, as part of the overall $40 billion investment.

In April however, the Taiwanese government insisted that TSMC’s expansion plans for new cutting-edge fabs on the island remain unchanged.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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