How Europe can keep up in the race for factories

Federal Chancellor Olaf Scholz and Economics Minister Robert Habeck came to present the plans, because the new plant is important beyond Saarland, as it is one of the few successes in Europe in the otherwise extremely tough race to catch up in chip production. While half a dozen new plants are already under construction in the USA to remedy the chip shortage, little is happening in Europe.

Scholz said in Ensdorf: “We have to create conditions for how we can get better in the EU and make the aid more flexible”. It is now about mobilizing billions.

Intel was the only chip manufacturer from overseas to decide to build new plants in Europe. Wolfspeed and partner ZF are now following suit with plans for the production of silicon carbide (SiC) chips.

>> Read here: In an interview, the Wolfspeed CEO and the ZF drive boss explain why they want to produce chips for electric cars together

Experts think it makes sense to set up a new SiC factory in Europe. “This is a technology that Europe needs and in which Europe could take a leading position,” says Ondrej Burkacky, semiconductor expert at consulting firm McKinsey.

Silicon carbide is in demand worldwide because it could help electromobility achieve a breakthrough. With Infineon and STMicroelectronics, the two largest European chip groups are also pursuing ambitious growth plans for SiC.

In addition, ZF’s competitor Bosch is expanding its SiC capacities. There is a reason for this: the car industry will gratefully accept the energy-saving chips for their electric vehicles. “The global demand for SiC chips is growing exponentially in line with global sales of electric cars,” adds automotive professor Ferdinand Dudenhöffer from the CAR Institute in Duisburg.

At present, however, not even every tenth chip worldwide comes from European factories. In 2022, two leading chip companies, Intel and Infineon, announced that they would invest several billions in new plants in Germany. However, the commitments are subject to the proviso that sufficient funding is available.

Brussels is delaying the decision

So far, the EU has not given its consent for this – although Commission President Ursula von der Leyen herself announced the chip offensive last spring. In the meantime, leading chip nations such as the USA, Japan, South Korea and Taiwan have launched funding programs worth billions. Construction work has started in many places, and half a dozen huge plants are currently under construction in the USA.

In contrast, Europe’s most important means of catching up, the “European Chips Act”, is developing only slowly. The comprehensive support program, which not only involves 43 billion euros in government funding, but also a relaxation of the legal restrictions on state aid for semiconductor manufacturers, has existed as a draft since February 2022.

Since then, various chip manufacturers have been waiting for the agreement and are basing their location decisions on it, such as the US group Intel for its planned 17 billion euro plants in Magdeburg. But the process drags on. If the package comes into force at some point, the EU wants to more than double its share of chip production in the world.

>> Also read our comment on the new chip plant: A big step for companies, a small step for Europe

After all, the Chips Act has now cleared an important hurdle: the Industry Committee in the European Parliament has voted to implement the package. But there is still a lot to be clarified before an agreement can be reached, for example whether the aid will only be paid out for chips of the latest generation and from which sources part of the required funds will come.

Dissatisfaction with tough subsidies in Germany

Elsewhere in Europe, however, billions in subsidies are already flowing. This is how the second “IPCEI Microelectronics” starts. In these projects of “common European interest”, the EU Commission and member states define sectors that are to be funded.

The legal framework for state aid will then be relaxed for them, and funding will come from national budgets. In Germany, the total funding is around four billion euros.

The Wolfspeed and ZF project in Ensdorf, Saarland, is now also to be funded from this pot. Overall, however, the funding is also slow here: In December 2021, the Federal Ministry of Economics sent the 28 projects that had applied from Germany to Brussels for approval.

There they are to this day. The final approvals should be given in the course of the first half of the year. In German government circles, the long processing time in Brussels is causing dissatisfaction.

The opposition is now demanding that the federal government speed things up. “Whether Magdeburg, Dresden or Saarlouis: The traffic light has a duty to speed up the European Chips Act in Brussels so that the announced settlements are a success,” Jens Spahn, Vice President of the Union faction, told the Handelsblatt.

The example of TSMC shows how difficult it is to attract chip companies from overseas. The world’s largest contract manufacturer has been considering settling in Germany for almost two years. It would be the Taiwanese’s first plant in Europe. The listed company has not yet made a decision. One thing is certain: It would be a blessing for industry in this country if production moved closer.

However, the EU will probably never be completely independent of chip deliveries from overseas. “Europe is currently very far away from becoming self-sufficient when it comes to chips. This would require 60 additional semiconductor factories just for front-end production,” says McKinsey expert Burkacky.

The so-called frontend is the core of the chip industry. Speed ​​is the key now. Burkacky: “Europe’s share of global semiconductor production will continue to fall for the time being. Because while demand and production are growing worldwide, it will be years before the plants now announced in the EU come on stream.”

More: High losses for Intel – bad omen for new plants in Magdeburg