Germany’s €5 billion subsidy to support TSMC’s Dresden chip plant
To attract Taiwan’s semiconductor giant TSMC to Dresden, the German government has approved a substantial €5 billion subsidy for the construction of a new chip factory, covering nearly half of the project’s total costs. The move is part of a broader strategy to secure semiconductor production within Europe. Chancellor Olaf Scholz defended the high level of government support, highlighting its importance for Germany’s economic and technological future.
EU approves German subsidy for Dresden chip factory
The European Commission has also approved Germany’s €5 billion aid package for the construction of the microchip factory in Dresden. The Commission reviewed the support under EU state aid rules, which permit member states to foster the development of certain economic sectors. According to the Commission, the subsidy has an incentive effect, meaning that without it, the facility would not be built. The total investment for the factory is expected to exceed €10 billion, with the German Federal Ministry for Economic Affairs and Climate Action covering half of the costs.
TSMC, in partnership with Bosch, Infineon, and NXP Semiconductor, plans to build the new semiconductor factory in the northern part of Dresden. The factory will primarily produce chips for the automotive industry. The groundbreaking ceremony for the TSMC plant is set for Tuesday in Dresden. The facility, which will cost over €10 billion, is expected to begin production by the end of 2027. This semiconductor factory is a key project under the European Chips Act, which aims to establish an innovative and sustainable semiconductor production base in Europe.
Chancellor Scholz defends large subsidies
German Minister for Economic Affairs Robert Habeck praised the swift action of the European Commission. “It was quite a difficult process,” he noted in a video posted on X (formerly Twitter). He emphasized that Germany will maintain the project’s pace and finalize financing approvals quickly. Habeck called the decision “a good day for Germany, a good day for the people in the region, a good day for technological security in Germany.”
Chancellor Olaf Scholz also defended the significant subsidies, citing the secure access to semiconductors for German companies, the creation of well-paid, future-proof jobs, and the economic boost for the entire region. Scholz justified the high subsidy by pointing out that the semiconductor industry is one of the most capital-intensive industries. “A single machine in this industry can quickly cost several hundred euros,” he said.
Scholz stressed the importance of expanding semiconductor capacity in Europe and Germany, stating that the country’s future in sustainable technologies depends on semiconductors. “We cannot afford to be dependent on other regions of the world for semiconductor supply,” he added. Scholz described it as “great news” that TSMC and its European partners have the necessary incentives, backed by the European Union’s chip funding program, to invest in Germany.
Concerns over subsidy race
The German government is also set to support a new Intel factory in Magdeburg with billions in subsidies. However, some economists are critical of this approach. They argue that Germany should not engage in a subsidy race with the United States. Reint Gropp, President of the Leibniz Institute for Economic Research Halle (IWH), remarked, “If the U.S. is heavily subsidizing, maybe we should refrain. That way, we could benefit from cheaper chips that we can purchase.”
