Berlin, Munich The American chip manufacturer Intel expects significantly higher costs for its planned plant in Magdeburg. As the Handelsblatt learned from government circles, the US group is now planning an investment of 27 billion euros. That is ten billion euros more than when the project started in early 2021.
Intel is increasing the pressure on the federal government. The chip manufacturer has been negotiating with the Federal Ministry of Economics for months about an expansion of investment aid for the plant in Magdeburg. So far, 6.8 billion euros have been promised, but Intel is now demanding around ten billion euros, according to the circles.
The demand splits the federal government. According to government representatives involved, the Ministry of Economic Affairs and the Chancellery have signaled that they are willing to pay Intel higher subsidies. The Federal Ministry of Finance, on the other hand, continues to insist that state aid will not be increased.
The Intel case is an example of the debate on how Germany can become more independent from other countries. The main issue here is how hard politicians should try to get foreign companies to build their industrial factories in Germany with the help of subsidies.
The Economics Minister of Saxony-Anhalt, Sven Schulze (CDU), also advocates higher subsidies. “We have an opportunity to build a whole ecosystem for innovation,” he said. However, economists fear that the labor force, which is already in short supply in East Germany, would be siphoned off. “Intel damages the start-up and innovation location,” said Reint Gropp, President of the Halle Institute for Economic Research.
Intel plant in Magdeburg: from 17 to 27 billion euros
It was already foreseeable that Intel would not be able to get by with the costs of 17 billion euros calculated for the plant in Magdeburg a good two years ago. Inflation hits the chip manufacturer comparatively hard, especially building materials have become significantly more expensive in recent months.
>> Read here: Intel considers almost ten billion euros in subsidies necessary
At the same time, however, Intel itself is responsible for the cost increases, government circles emphasize. The US group wants to use more modern technology than originally planned in Magdeburg at the start of the plant. Intel has postponed the start of construction in Saxony-Anhalt from the first half of 2023 to 2024. The company currently expects to start manufacturing in 2027 or 2028.
An Intel spokesman confirmed to the Handelsblatt: At the start of production, Magdeburg wants to use the technology that is leading at the time. So Intel will probably use the next generation of EUV systems from the Dutch manufacturer ASML. The so-called high-NA EUV machines will cost several hundred million euros each and should be available from the middle of the decade.
EUV stands for “extreme ultraviolet light” with which the semiconductors are exposed. Only this technology from ASML makes it possible to produce chips of the most advanced generation with structure sizes of less than five nanometers. These are used for the latest smartphones and computers.
The Federal Minister of Finance does not want to give Intel any additional state aid, the Federal Minister of Economics is more open.
(Photo: IMAGO/Emmanuele Contini)
The Intel spokesman did not want to comment on the concrete cost calculation. There are additional costs and a solution must be found together with the state, he said. Talks at the highest level between the US company and the federal government are expected to take place again in mid-June.
There is some distrust of Intel among government negotiators. Those involved said it was clear that the 17 billion euros in investment could no longer be up-to-date. But Intel is certainly also a bit concerned with getting the highest possible subsidies.
Two of the chip production systems known as “Megafab” are to be built in Magdeburg. Speculations that Intel already wants to build more megafabs have been denied in government circles.
Compared to other Intel plants, the cost increase to 27 billion euros does not seem unreasonable. Intel is planning a plant of the same size at its US location in Ohio. At the laying of the foundation stone in September last year, the group named costs of 20 billion dollars.
Subsidies for Intel divide Habeck and Lindner
According to government circles, the Federal Ministry of Economics and the Chancellery are of the opinion that more investments also allow more subsidies. The government had previously made it clear that it was more willing to increase state aid if the investment amount increased.
>> Read here: Chip manufacturer from Taiwan plans billions investment in Dresden
Federal Finance Minister Christian Lindner (FDP) sees it differently. The Liberal party leader has been discussing with Economics Minister Robert Habeck (Greens) for weeks the question of how much money should be made available for which government projects.
The 6.8 billion euros for Intel, which had already been promised under the government of the then Chancellor Angela Merkel (CDU), have already been deposited in the federal budget. They are not up for debate.
“The project as a whole is making progress.”
(Photo: Bloomberg)
Lindner wants to comply with the debt brake and considers subsidies to be economically inefficient. The Ministry of Economics counters this and is of the opinion that the large-scale subsidy programs for semiconductor manufacturers in the USA and China can only be governed with their own state support.
In Habeck’s house, people are angry about Lindner, according to the ministry. The Minister of Finance presents himself as a politician with great economic expertise. But when it comes to helping the economy, he keeps blocking things.
Union parliamentary group leader Jens Spahn is also asking Lindner to rethink his priorities. “The federal government must approach Intel and ensure that the project is implemented,” said Spahn. Germany must “become more independent of Asian manufacturers”.
>> Read here: Federal government paves the way for record investment by Infineon
Microchips are considered a strategically important asset. During the coronavirus pandemic, supply chains from Asia were broken, leading to month-long shortages of electronics and cars.
Intel is about subsidies and energy aid
The Ministry of Economics is now trying to reduce the cost gap for Intel in a different way, according to government circles. Talks are currently being held with energy suppliers, for example. A cheaper electricity supply could make the settlement in Magdeburg more attractive for Intel. The Intel spokesman confirmed that it was not only about subsidies, but also about energy prices.
The industrial electricity price proposed by Habeck, which Lindner also blocked, could also influence Intel’s decision. In addition, the current talks are about making the supply of water for the US company as cost-effective as possible.
The new chairman of the independent scientific advisory board of the Ministry of Economics, Eckhard Janeba, thinks that Habeck’s employees are still willing to pay higher subsidies is wrong. Electricity prices have recently fallen again significantly. “With a rapid expansion of renewable energies, they can fall further when chip production is planned to start in 2027,” the Mannheim economist told the Handelsblatt.
In any case, the plant in Magdeburg does not seem to be fundamentally up for debate for Intel. CEO Pat Gelsinger has repeatedly emphasized that he wants to stick to Magdeburg. Even in government circles, there is at least no acute concern that Intel could still decide completely against the settlement.
But the negotiations are also sluggish because Intel is under severe economic pressure. In the most recent quarter, the company’s business collapsed: the bottom line was a loss of 2.8 billion dollars.
>> Read here: Poor environmental performance is becoming a problem for the chip industry
Gone are the days when chips were scarce around the world and buyers of cars and washing machines had to wait months for delivery. Intel already operates plants in Israel and Ireland that are no longer operating at full capacity. Therefore, CEO Gelsinger had promised his shareholders to stretch planned investments. So he is in no hurry to start construction in Magdeburg and can negotiate calmly.
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