Over the past couple of years, Germany has attracted massive investments in its chip sector. Intel, Wolfspeed and Infineon are all building big new factories. The largest chipmaker of all, TSMC of Taiwan, reportedly might follow suit.
But the new fabrication plants, or fabs, are coming at an eye-watering cost. Scholz’s government is throwing billions of euros in subsidies at the tech companies to lure them to Germany — €1bn in the case of Infineon’s new plant.
“That’s €1mn in state grants for every new job created, just to improve our security of supply by a little bit,” Clemens Fuest, head of the Ifo, a leading economic research institute, told ARD TV. “Even if it all works, we’ll still be importing 80 per cent [of our chips] by 2030.”
The sudden passion for subsidies comes at a time of growing alarm in Europe over the fragility of its supply chains and its huge dependence on Taiwan and South Korea for a resource that Scholz in Dresden described as the “oil of the 21st century”.
The end-of-days scenario stalking the corridors of government in Berlin and Brussels: China invades Taiwan, source of more than 90 per cent of the world’s most advanced chips, and the supply of semiconductors dries up, bringing factories the world over to a standstill.
"We saw last year what a mess we’d got into with our energy dependence on Russia, how fatal that was,” says Michael Kellner, state secretary at the German economy ministry. “The lesson from that is, in terms of our chip production, we in Europe have to have greater autonomy.”
The EU’s response has been to loosen state-aid rules and mobilise billions of euros in grants for tech companies. Officials argue they have no choice: the US is enticing chip manufacturers and clean energy companies with a vast array of financial incentives, and if Europe fails to act it risks losing the race for the technology of the future [https://lnkd.in/ggbeyBGQ].
“In the competitive situation we’re in globally with fabs, everybody dopes,” says chip industry expert Jan-Peter Kleinhans of Stiftung Neue Verantwortung, a think-tank. “And whether you like it or not, if you don’t dope, you cannot compete.”
But the level of state support is beginning to reach levels that even advocates of more chip investment find excessive. Intel, for example, was due to receive €6.8bn in government support for its new fab in the east German city of Magdeburg. Yet it is now demanding around €10bn. Critics are questioning why it should get so much state aid, especially when there’s so little domestic demand for the cutting-edge chips it plans to produce in Germany.
Intel’s fresh demands for cash have unleashed a heated debate among economists about whether it’s the best use of taxpayers’ money.
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