Germany's US$22 billion investment to boost chip manufacturing

The backstory: Last year, the European Commission pitched the EU Chips Act and wanted to boost chip production in the EU to 20% of global output by 2030. At that time, it was only making around 9%. This move was partly because COVID messed up supply chains and caused problems, plus some political tensions were going on, too. Then, in April, the EU gave the green light to €43 billion (about US$47 billion) to boost its own chipmaking industry. The idea was to catch up with places like the US, Taiwan and China, which are leading the global pack on the chip front.

Germany, being the biggest economy in Europe, is leading the charge. It wants to become less reliant on Asia for chips and German Chancellor Olaf Scholz even had talks with South Korea, trying to get the country to invest in Europe to improve supply chains. It seems Germany is becoming a hotspot for tech giants, with companies like Infineon Technologies AG and Wolfspeed taking on major chip projects in the country. And Scholz believes more companies might follow suit.

More recently: Last month, US chipmaking giant Intel struck a deal with Germany to get a €10 billion (US$11 billion) aid package for its production site in Magdeburg. Meanwhile, Taiwan Semiconductor Manufacturing (TSMC), the world's top contract chipmaker, is in talks with the German government for subsidies. TSMC's Chairman Mark Liu seems pretty optimistic about the discussions they're having, and they're looking to set up their first European factory in Germany.

The development: Germany just announced that it's got a €20 billion (US$22 billion) plan to supercharge its semiconductor manufacturing game and boost the tech sector. This cash infusion will be spread out among German and international companies. The funds will come from the Climate and Transformation Fund (KTF) starting next year.

Now, it's worth noting that while the US is investing US$50 billion with its Chips and Science Act, Germany's subsidy package is still quite high compared to other major governments. Japan plans to pitch in over US$14 billion to boost its chip sector, and India has budgeted around US$10 billion to attract investments.

Key comments:

"The draft for the economic plan 2024 and the financial plan until 2027 for the Climate and Transformation Fund are currently being prepared," said the German finance ministry to Bloomberg. "This process has not yet been completed."

"Today's agreement is an important step for Germany as a high-tech production location – and for our resilience," said Chancellor Olaf Scholz when the country secured a deal with Intel last month.

"If they are implemented – and we are working on this – Germany will become one of the world's major semiconductor production locations," said Scholz. "Such investments will diversify our supply chains and enable German and European companies to source the chips they need in the EU."

"Many people around the world have understood that we have to become resilient and that there are certain industries that should necessarily be located here in Europe and in Germany," said Scholz.