Germany wants more chipmakers, but they won't come cheap

Global competition to attract semiconductor companies is set to cost Berlin billions. Some wonder if it's a good use of money.

Intel, the Silicon Valley chipmaker giant, has paved the way for the last year by choosing the eastern German city of Magdeburg as the site of its first semiconductor factory in Europe, pledging to invest 17 billion euros (approximately $18.3 billion ) - on condition that Berlin contributes nearly €7 billion in subsidies.

Wolfspeed, a Carolina-based maker of silicon carbide chips used in electric cars du Nord, decided last month that south-west Germany would be the ideal place to invest 2.5 billion euros in the construction of its first European factory. Again, the deal depended on hundreds of millions more from the government.

Infineon, Germany's largest chipmaker, is considering adding two factories at its Dresden manufacturing site, spending 5 billion euros, but it wants the government to cover around a fifth of that.

Each of the projects promises to help alleviate the microchip shortages German industries have faced since the pandemic and create thousands of jobs, fueling an ecosystem that could sustain the economy for decades. For chipmakers, Germany offers a location in the heart of Europe close to many of their customers, including the country's €410 billion automotive industry.

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But each project is also conditional on millions, if not billions, of government grants. Germany and the European Union find themselves competing with the United States and other countries seeking the security of a robust domestic chip industry. Abundant subsidies and other pending benefits are the price to pay to land these companies. a chip factory on the site of a former power station in Saarland were, left to right, Holger Klein, who heads ZF, an auto parts maker; Anke Rehlinger, the leader of Saarland; Chancellor Olaf Scholz; Gregg Lowe, Managing Director of Wolfspeed; and Economy Minister Robert Habeck.Credit...Thilo Schmuelgen/Reuters

Granting subsidies is complicated in the European Union, as Brussels strictly controls this aid to avoid distortions within its single market. Support for these chipmakers will be funded by national and regional governments, as well as the EU. funds to spur investment.

The pots of public money lavished on these companies reflect the critical need for their tiny shards of silicon, which are essential for a list endless array of modern technology devices, including cars, refrigerators and military equipment.

“The transition to electric vehicles is highly dependent on semiconductors. The transition to renewable energy is also heavily dependent on semiconductors,” said Thomas Kirschstein, electronics and microchip expert at Roland Berger, a consulting firm. "All the megatrends you have in the world rely on semiconductors to produce the end product."

Right now, German companies rely on factories in Taiwan and North America for most of their microchips, a potential national security threat.

ImageAn Infineon factory in Villach, Austria. The German chipmaker wants the government to cover around a fifth of the cost of adding two factories in Dresden.Credit...Alexandr...