The German government plans to provide about 20 billion euros in incentives to support the technology sector and secure chip production in the country. The plan stands out as one of the largest stimulus plans after the USA’s 50 billion chip and science laws.
In Germany, Olaf Scholz’s government plans to provide $20 billion in incentives to support semiconductor manufacturing to support the country’s technology sector and secure the supply of critical components amid rising geopolitical tensions.
The resource in question will be withdrawn from the Climate and Transformation Fund and distributed to German and international companies until 2027.
The extra-budgetary fund, known as the KTF, was originally set up to invest in decarbonizing the economy, but the fund’s scope was expanded after Germany’s efforts to rein in planned public spending.
According to Bloomberg sources, the government is in talks to distribute a fund that could reach $180 billion in size, and this plan is expected to be announced in the coming weeks.
The Scholz government created a new Intel Corp. It has already approved 10 billion euros in subsidies for its plant and is in the process of providing approximately 7 billion euros more subsidies to companies including Germany’s Infineon Technologies and TSMC.
3 billion euros still available
The chip incentive scheme, in its current form, means that at least 3 billion euros are available for additional projects, and this could benefit other companies operating in Germany.
These include GlobalFoundries, which has a substantial presence in the city of Dresden, and German supplier Robert Bosch, which has a chip manufacturing facility in the city.
The aggressive stimulus plan comes at a time when it has become more apparent that the European economy is reliant on supplies from Asia, following cutbacks from the pandemic and tensions exacerbated by the war in Ukraine.
The German government announced earlier this month that it will seek to reduce their dependency by attracting and diversifying future technologies such as semiconductors in its Chinese strategy.
The incentives and investments announced so far in Germany are as follows;
Company Project Incentive Amount Total Investment
Intel Wafer factory up to 5 billion euros – 30 billion euros
TSMC Chip factory up to 5 billion euros – 10 billion euros
Infineon Semiconductor factory up to 1 billion euros – 5 billion euros
ZF/Wolfspeed Silicon carbide chip plant €750 million – €3 billion
Germany’s automakers and other manufacturers struggled to secure chip supply at the height of the pandemic, prompting action to increase domestic semiconductor production.
Most of the funds will go to non-European companies
Trade disputes between the US and China also highlighted the risks of over-reliance on overseas supply chains. On the other hand, most of the funds will go to non-European companies.
While US chip maker Intel secures half of the fund with a 10 billion euro incentive planned for its Magdeburg production facility in East Germany, this amount corresponds to one third of the total investment made in the facility.
Sources stated that the Scholz government is in the final stages of negotiations with TSMC, the world’s largest chip maker, on investing in a facility in East Germany, and that 5 billion euros, half of the total investment, has already been budgeted.
The government will allocate about 1 billion euros for Infineon, about 20 percent of the investment in a new semiconductor factory in Dresden, while German automotive supplier ZF Friedrichshafen AG and US chip maker Wolfspeed will receive 750 million euros, which corresponds to about 25 percent of the investment cost, to establish a factory for the production of silicon carbide chips in the state of Saarland.
Further funding is planned for other key technologies
Other funds are planned as part of the European Union’s program to invest in the bloc’s green and digital transition, as well as other key technologies known as IPCEI projects.
While it doesn’t come close to the $50 billion the US provided through the Chip and Science Act, Germany’s subsidy package is still higher than what other major governments have promised to boost domestic chip production.
Japan is preparing to commit more than $14 billion, while India is offering $10 billion to attract investment.