Taiwan Semiconductor breaks ground on its first European wafer fab, receiving 5 billion euros in subsidies from the German government

According to the Zhītōng Finance and Economics APP, as Taiwan Semiconductor (TSM.US) seeks to secure its chip supply in mainland Europe, its first European factory in Dresden, eastern Germany, has broken ground. The wafer fab, planned to start production in 2027, will cost over 10 billion euros (approximately 11 billion US dollars), with the German government providing a subsidy of 5 billion euros for the factory construction.

German Chancellor Scholz, who attended the groundbreaking ceremony for the new factory, stated, "Our sustainable future technology depends on semiconductors, but we cannot rely on semiconductor supplies from other parts of the world." Germany is leading the EU's efforts to produce one-fifth of the world's semiconductors by 2030. Faced with supply chain bottlenecks caused by the COVID-19 pandemic and tense geopolitical situations, the EU is seeking to expand semiconductor production capacity in the region.

Scholz has become the biggest supporter of the European semiconductor industry, seeking to promote Germany's technology sector and ensure the supply of key components for German manufacturing. The German government under Scholz's leadership plans to spend 20 billion euros to support domestic semiconductor production, including the 5 billion euros subsidy for the construction of the Taiwan Semiconductor factory and a 10 billion euros subsidy for Intel's (INTC.US) planned factory in Magdeburg.

This new wafer fab by Taiwan Semiconductor will help Europe reduce its dependence on imported key technologies. Previously, German automakers including Volkswagen and Porsche have shown interest in increasing domestic semiconductor production in Germany. Taiwan Semiconductor will hold a 70% stake in the new factory, while German partners Bosch, Infineon, and Dutch chipmaker NXP will each hold a 10% stake.

Reports indicate that the Dresden factory of Taiwan Semiconductor will not produce high-end chips required for smartphones or artificial intelligence applications, but will focus on producing power semiconductors for the automotive industry to meet the EU's demand for localization of automotive and industrial chips.

However, some market participants are not optimistic about the EU's plans to increase its semiconductor production capacity. The "EU Chip Act" was announced in 2022, but so far, according to the Act, the EU Commission has only approved the issuance of two subsidies, and the number of factories under construction is scarce. Former CEO of Dutch chipmaker ASML, Peter Wennink, stated in a media interview earlier this year that the EU does not have the capacity to build production facilities fast enough, and achieving the goal of increasing its share in the global semiconductor market to 20% by 2030 is "completely unrealistic."