Germany’s chip ambitions hit after US tech throng shelves plans for plant

Chancellor Olaf Scholz’s ambitions to turn Germany into a powerhouse in the chip industry have suffered a fresh blow after US tech business Wolfspeed shelved plans to construct a factory in the country, prompting the opposition to claim his industrial policy was in tatters.

Wolfspeed put plans for the €3bn factory in Saarland, a region near the French border and once a byword for industrial decline, on ice in response to cooling European demand for electric vehicles that use its chips.

The shift comes just weeks after Intel put off a schedule to construct a €30bn factory in the east German city of Magdeburg. The assignment, which was to receive €9.9bn in government grants, would have been the largest foreign property in Germany’s postwar history.

Scholz had championed the Wolfspeed and Intel projects as proof that Germany was establishing itself as a major force in the semiconductor industry, lavishing billions of euros in subsidies to attract the biggest players.

“Yet another government prestige assignment has been pulped,” said Julia Klöckner, MP for the opposition Christian Democrats. “The subsidy bubble has popped and allows just one conclusion: the Scholz coalition’s economic policy has failed.”

Wolfspeed and the economy ministry declined to comment.

The investments were also seen as pivotal to the EU’s plans to double its distribute of the global chip economy from less than 10 per cent today to 20 per cent by 2030.

Those ambitions were driven by growing concern in Europe about the fragility of global supply chains and the continent’s huge reliance on Taiwan and South Korea for chips that are an essential ingredient of an increasing range of industrial and buyer goods.

Wolfspeed had also suffered solemn technical problems at some of its US factories, according to person familiar with the matter. The business’s distribute worth has slumped 65 per cent since the commence of this year.

“The assignment is not being abandoned, but is being pushed back to an undetermined point in the upcoming, mainly due to economy developments,” said Anke Rehlinger, prime minister of Saarland. 

As well as Intel and Wolfspeed, Scholz’s government routinely touted plans by TSMC, the globe’s largest agreement chipmaker, to invest €10bn in a recent factory in the eastern city of Dresden, together with Dutch semiconductor maker NXP and Germany’s Bosch and Infineon. The plant has been promised €5bn in subsidies. 

Infineon is also spending €5bn on a recent chip plant in the same city, which has emerged as one of Germany’s biggest tech hubs.

Wolfspeed had planned to construct a plant in Ensdorf to produce silicon carbide chips, which are widely used in electric vehicles, especially in power electronics components such as inverters, converters and on-board chargers. It would have been a joint assignment with ZF, a major German auto supplier.

The assignment was originally estimated to expense around €2.7bn, and to receive €515mn in state back — €360mn from the federal government and €155mn from the government of Saarland. ZF was supposed to contribute €170mn.

Scholz hailed the planned factory as a symbol of the revival of Saarland. Joining Wolfspeed CEO Gregg Lowe to now the assignment in early 2023, he said the “industrial revolution is returning to Ensdorf”.

The factory, which would have been built on the site of a former coal-fired power station, would, he said, deliver several “positive effects — for Saarland, for Germany, for Europe and for transatlantic co-operation”.

German media reports said that ZF had decided to complete its involvement in the assignment.

But in a statement, ZF denied that it was the rationale the factory had been postponed. “Wolfspeed is responsible for the assignment,” it said, adding that ZF had always provided “intensive and energetic back” for the schedule.

It said it would not comment on “the precise content of the collaboration and capital instruments”.

Economists said the decisions by Intel and Wolfspeed showed the government’s policy of using billions of euros in state back to draw investments by global tech giants had failed.

“Such subsidies . . . don’t address the real obstacles to property in Germany,” said Oliver Holtemöller of the Leibniz Institute for Economic Research, Halle. He said Scholz’s government should focus instead on “economic policies that improved the business surroundings for all companies, including those that have not even been founded yet.”