Companies operating in the chip manufacturing industry are asking to triple the amount of subsidies provided under Germany’s latest funding program, which is one of the top priorities for the government of this country.
Firms applied for subsidies totaling 6 billion euros ($6.5 billion) under a call issued by the German outgoing political leadership in November. The relevant information was published by the media, referring to two insiders who used the right of anonymity, since the mentioned figure is not public. The journalists reported that only 2 billion euros are currently available.
Officials expected it to be about a dozen applications. The final figure was almost three times higher. The total investment amounted to 13 euros billion, including company contributions. The relevant information, according to media reports, has been confirmed by Germany’s economy ministry.
Semiconductors are gradually becoming one of the most important components of the German economy. Currently, this country is the largest exporter of chips in the European Union, accounting for about one-third of all sales. It is worth noting that microcircuits are critically important products. Also, chips are gradually becoming a kind of new dimension of geopolitical competition. Microcircuits are used in a wide range of technological products, including smartphones and cars. Semiconductors are also necessary for training and ensuring the process of subsequent functioning of artificial intelligence systems.
The media, citing insiders, reported that Friedrich Merz, the chancellor-in-waiting, during confidential conversations before the election signaled his intention to continue subsidizing the chip manufacturing area. It is also worth noting that the issue of technological sovereignty has become increasingly relevant for many countries lately. Against the background of the currently observed geopolitical tensions, one of the forms of which is the tariff confrontation between the European Union and the United States, the country’s ability to ensure an independent production process that relies minimally or not at all on global supply chains determines its prospects, including economic and political ones.
It is worth noting that Friedrich Merz has publicly stated that he supports subsidies for Intel Corp. and the project involving Taiwan Semiconductor Manufacturing Co. (TSMC).
A spokesperson for Mr. Merz did not respond to a media request for comment on the insider information.
Representatives of the chip manufacturing industry are concerned that they will not receive the necessary support on time. Negotiations on a new coalition to lead Germany are ongoing. Frank Bösenberg, head of the lobby group Silicon Saxony, stated that the current question is whether investments will be lost due to the mentioned process being carried out too slowly and companies moving elsewhere. It was also noted that another relevant issue is the degree of probability that Germany will lose investments because of the lack of funding.
GlobalFoundries Inc., a United States chip manufacturer, had applied for subsidies to expand its existing manufacturing plant in Dresden. The relevant information was published by the media with reference to a spokesman of the mentioned company.
Infineon Technologies AG, a German semiconductor manufacturer, had also applied. This information was published by the media with reference to an insider. At the same time, representatives of the mentioned company did not respond to a request for comment.
The initial subsidy program was announced in November by the outgoing German government. It was planned to fund from 10 to 15 projects. A spokesperson for the German economic ministry in an email cited by the media said about 25 projects could eventually be funded, but the next government will have to clarify issues related to financing and scope.
After the February elections, the conservative CDU/CSU bloc and the Social Democrats have been working to overcome policy differences and are negotiating the formation of a new coalition government. Against the background of the mentioned process, many projects have stalled. This week, a landmark spending package was passed that would set up a 500 billion euro fund to invest in the country’s aging infrastructure. Chip manufacturers hope to benefit from the spending spree.
Currently, governments around the world are investing in the making of the microcircuits sector after the critical shortages observed during the coronavirus pandemic, when numerous restrictions were imposed against the backdrop of a difficult sanitary and epidemiological situation that disrupted the functioning of global supply chains. Weak consumer demand became a reality for the chip manufacturing industry last year. In the context of the consequences associated with the mentioned state of affairs, many major producers that have committed to building in Germany have faced setbacks.
In September, Intel postponed the construction of a plant in Magdeburg worth 30 billion euros. The United States chip manufacturer Wolfspeed Inc. and German automotive supplier ZF Friedrichshafen AG have also rowed back smaller expansion plans.
It is currently unknown what criteria the new German government will use when choosing a project to subsidize. It is also worth noting that the national strategy in the microelectronics area has yet to be finalized. According to media reports, in a short paper published last week, Germany’s economy ministry argues that Berlin, as a policy center, should focus on strengthening existing businesses, gaining new technologies, and taking out risks in supply chains.
It is worth noting that the way the subsidies are structured is the subject of discussion. Chips projects in Germany are co-financed by the national government, which pays 70% of the subsidies, and local governments, which take on the remaining 30%.
Saxony, where a cluster of microcircuit manufacturing projects is being formed, is currently facing a shortage of funds. About a third of those applying for subsidies companies want to build production facilities in this eastern German state. This was reported by the media, referring to an insider. As of 2023, Saxony ranked 12th among the 16 German federal states in terms of gross domestic product (GDP) per capita.
A spokesman for Saxony’s economy ministry said in a media comment that the strategic importance of the European chip industry goes far beyond regional economic efforts for the mentioned cluster. It was also noted separately that the future viability of the European semiconductor sector should not depend on the very scarce resources of Saxony.
Germany’s economy ministry and some of the states discussed the co-financing structure this month. This was reported by the media, citing insiders. At the same time, any changes will have to wait for a new economic minister to be in place.
As we have reported earlier, Nvidia Announces New AI Chips.
