Germany Boosts Chip Production with 20 Billion Euro Investment

Germany: 20 billion euros to increase chip production

The federal government of Germany has announced plans to allocate 20 billion euros to support semiconductor production in the country. The aim of this initiative is to strengthen the technology sector and ensure a stable supply of critical components amidst rising geopolitical tensions. The funds will be distributed to German and international companies by 2027, sourced from the Climate and Transformation Fund (KTF), which was initially established to invest in decarbonization efforts. The specific distribution of the KTF’s total budget of up to 180 billion euros is currently being negotiated within the federal government and will be disclosed in the coming weeks.

One major recipient of the funding will be US chip manufacturer Intel, which is set to receive half of the allocated amount to support its semiconductor production. The German government has already approved 10 billion euros in aid for Intel’s new production site in Magdeburg. The facility, referred to as “Silicon Junction,” aims to become a pivotal hub for advanced European chip production, utilizing cutting-edge technology from 2027 or 2028. Negotiations also include potential subsidies of seven billion euros for other companies such as Taiwan Semiconductor Manufacturing Co. (TSMC) and German firm Infineon Technologies AG, with at least three billion euros reserved for additional projects. Discussions about a 10 billion euro TSMC semiconductor plant in Germany have already taken place, while Infineon is constructing a new semiconductor facility in Dresden.

The decision to provide extensive subsidies for semiconductor production comes amidst mounting geopolitical tensions, economic uncertainties, and high inflation rates. During the peak of the Covid-19 pandemic, German automakers and other manufacturers faced challenges in securing chip supplies. The trade disputes between the United States and China have also underscored the risks associated with overreliance on foreign supply chains. Additionally, the geopolitical tensions surrounding Taiwan have raised concerns about potential disruption to global supply chains. In response to these factors, the United States has launched a multi-billion dollar subsidy program, known as the Chips and Science Act, to boost domestic semiconductor production.

The European Union has also implemented the European Chips Act, which aims to attract state-of-the-art semiconductor production to reduce dependence on the United States and China in the microelectronics and chip development sector. Within this framework, the EU has approved a multi-billion dollar subsidy program, with many projects focused in Germany. The recent announcement by the German federal government, reported by Bloomberg, aligns with this strategy. In its China strategy unveiled earlier this month, the German government expressed its intention to decrease dependencies by diversifying supply chains and investing in future technologies, including semiconductors.

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