In Germany, delays in chip factory projects fuel doubts about the merits of subsidies

It was August 20, in Dresden, Saxony, the German stronghold of microelectronics. Chancellor Olaf Scholz, although not used to demonstrations of joy, did not hide his pleasure. For the laying of the first stone of a new giant chip factory, a prestigious delegation had traveled. Next to the recently re-elected President of the European Commission, Ursula von der Leyen, Che-Chia Wei, the boss of TSMC, the world’s leading manufacturer of semiconductors, had come specially from Taiwan.

The Asian giant has joined forces with German companies Bosch and Infineon, as well as Dutch company NXP, in the joint venture European Semiconductor Manufacturing Company (ESMC) to build the plant. The site is to supply chips to the local automotive industry from 2027, creating 2,000 jobs.

The investment of 10 billion euros was made possible by the generosity of Berlin, which granted no less than 5 billion euros in subsidies to the project. For Olaf Scholz, the visit to Dresden offered a rare opportunity to justify the merits of his policy in favour of this high-tech industry, in a gloomy political and economic context.

Berlin, which has earmarked a €20 billion envelope to attract the world’s major semiconductor manufacturers to Germany, sees itself as a big winner of the Chips Act launched by Brussels in 2022. This program mobilizes €43 billion to double Europe’s weight in global chip production by 2030. It is the European response to the global race for subsidies that the major regions of the world are currently engaged in in microelectronics, the importance of which is considered strategic for the future.

Market reversal

However, in Germany, doubts are slowly creeping in about the reality of the announced implantation projects and the relevance of the subsidies, in a context of market downturn. In Magdeburg (Saxony-Anhalt) and Ensdorf (Saarland), two factory projects launched with great fanfare in 2022 and 2023 are currently at a standstill.

The American group Intel, which carries the Magdeburg plant, is mired in crisis. Cornered, its boss, Pat Gelsinger, announced at the beginning of August a global savings plan that provides for the elimination of 15,000 jobs and the reduction of 20% of its investment projects. Although the Magdeburg plant has not been mentioned for the moment, mistrust has set in over the future of the project, estimated at 30 billion euros, of which 10 billion must be financed by Berlin… on condition that the subsidy is approved by Brussels.

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