TSMC is the world market leader for particularly advanced chips- © Jakub Porzycki/IMAGO
Taiwan's chip giant TSMC is now almost certainly building a factory in Dresden. The catch: The technology that lures Germany with a lot of money is outdated.
This analysis is IPPEN. MEDIA as part of a cooperation with China.Table Professional Briefing – it was first published by China.Table on May 25, 2023.
Dresden – Taiwanese semiconductor manufacturer TSMC is speaking openly about its planned investment in Dresden for the first time. The project is making good progress, Senior Vice President for Business Development, Kevin Zhang, told journalists in Amsterdam. The final decision will be made at a board meeting in August.
The EU and Germany are fiercely courting the market leader for advanced chips. The automotive industry in particular is pushing for the vital components to be produced again within the EU. This is also an important building block for the "de-risking" that is currently dominating the China debate. A conflict over or with China should not paralyze the entire industry. TSMC's main site in Hsinchu is potentially threatened by a Chinese grip on Taiwan.
Newsletter from Table.Media
Get 30 days of free access to further exclusive information from the Table.Media Professional Briefings – the decisive factor for the decision-makers in business, science, politics, administration and NGOs.
Microchips: Subsidies sweeten Germany as a business location
A TSMC location in Dresden has been under discussion for some time. The Taiwanese company is already going to the USA and Japan with new factories – also at the request of the local governments. Now it's Europe's turn. The company was therefore able to play high poker in terms of subsidies. It has good arguments that the state should provide an incentive for investment:
- Energy costs in Germany are higher than at all other locations;
- in addition, there are high labor costs and a shortage of skilled workers.
According to reports, TSMC will receive three to four billion euros from the state, which is almost half of the project's cost of around ten billion euros. The semiconductor specialist Infineon and the automotive supplier Bosch are being discussed as local partners. Working with national champions is common. In Japan, the technology group Sony and the automotive supplier Denso are on board.
Worldwide production race for chips
The higher costs in Germany partly justify the subsidies. At the same time, however, they are an expression of a global subsidy race. China itself is currently making one trillion yuan (130 billion euros) available for the semiconductor sector. All major economies are currently acting in a similar way: they want or need to become more independent of the others.
China is under particular pressure, after all, the US is effectively cutting off the country from access to high-tech semiconductors. Europe is acting frantically under the shock of dependence on Russia after the invasion of Ukraine, but the idea of a semiconductor settlement was born long before that. The U.S. is spending $1.5 trillion on the Chips and Science Act, which aims to bring technologies back home. Enormous sums of money are flowing from taxpayers worldwide into the semiconductor industry.
Billions from the EU's Chips Act
Europe now sees the danger that subsidized semiconductors from China will be gratefully taken from customers. Chinese state-owned enterprises could thus displace European competition and become indispensable.
The EU Commission is counteracting this, among other things, with its Chips Act, which provides incentives for semiconductor manufacturing. The EU wants to more than double its share of global semiconductor production from the current nine percent to 2030 percent by 20. Under the Chips Act, it is mobilizing 43 billion euros for this purpose. TSMC probably wants to draw funds from the program.
TSMC comes with clumsy chips
The new chip factory in Dresden is very welcome from the point of view of the German industry, but TSMC does not offer Europe the latest technology. In all likelihood, the company is building a factory for semiconductor generations as they were current around 2010. Specifically, these are chips with structure widths of around 28 nanometers.
However, the technical limit that only TSMC can reach is currently three nanometers, and current high-end applications on the market use chips with structure sizes between four and seven nanometers. The smaller the number, the faster, more energy-efficient and cooler the chips run. Modern AI applications need the tremendous computing power that is only possible in the single-digit nanometer range.
For the simpler computers in today's cars, however, 28-nanometer chips are still quite sufficient, so Germany has eagerly grabbed it. However, chips in this performance class are already being manufactured in Europe – and even in Dresden. TSMC will continue to manufacture the most modern chips with tiny structure widths in Taiwan for the foreseeable future. This is also in the interest of the threatened island republic. The "silicon shield" in front of China works when the US fears the loss of systemically important suppliers and therefore has a concrete motivation for military aid.
Contract manufacturer for well-known brands
TSMC is definitely systemically important at the moment. This also has to do with how the industry has developed. The providers with the best technology have prevailed over decades – and there are only a few companies left that actually produce physically.
The well-known names in the chip business such as Intel, AMD, Nvidia, Infineon, Apple or Qualcomm have their ideas implemented at TSMC and stick their name tags on them. Clients have the advantage of not having to spend any capital on buildings, machines and employees and still being able to offer state-of-the-art products.
The potential investment partners Bosch and Infineon already operate their own plants in the Dresden region. They would be the ideal buyers for the products from the new TSMC plant, which the Taiwanese company could manufacture on their behalf. Bosch manufactures semiconductor elements for the automotive industry here.