EU approves German state aid for $11 billion TSMC chip plant

By Hakan Ersen and Toby Sterling

DRESDEN/BRUSSELS (Reuters) -Taiwan's TSMC on Tuesday launched a major new computer chip plant in Dresden, Germany, expected to be a key supplier to European industry and carmakers after the EU Commission approved 5 billion euros ($5.5 billion) worth of state aid.

The large aid award for the project, which will cost 10 billion in all, is the biggest approved so far under the EU Chips Act, and the first in Germany.

It is also the first project in Europe under TSMC, the world's largest contract chipmaker, and is expected to improve Europe's resiliency if a chip shortage of the type experienced during the COVID pandemic happens again.

"This is a true win-win situation for all of us," EU Commission President Ursula von der Leyen said at a ceremony in Dresden, the heart of Germany's "Silicon Saxony" chipmaking region.

German Chancellor Olaf Scholz said ensuring access to semiconductors is a "central issue" for Germany, while Economy Minister Robert Habeck said his government, which has struggled with budget problems, would do all it can to ensure the project enters production on time in 2027 as planned.

TSMC formed a joint venture called the European Semiconductor Manufacturing Company (ESMC) to build the plant, with European firms Robert Bosch, Infineon and NXP each taking a 10% stake.

CEO C.C. Wei said the plant would help bring TSMC "close to its customers" in Europe.

Conditions for aid approval included that ESMC guarantee access for smaller companies and universities.

"The facility will operate as an open foundry, meaning that any customer – including but not limited to the three other shareholders besides TSMC – can place orders for the production of specific chips," the Commission said in a statement.

Although the plant will be making generations of chips slightly behind the most advanced technology used in AI chips and smartphones, it will add capacity in the range that is most important for automotive and other industrial applications key to European manufacturing.

TSMC says the plant will be an important source of the MCUs or microcontroller units used throughout cars in windows, brakes and sensors.

Bosch, NXP and Infineon have all said they will also use the plant at least in part to make various types of automotive chips.

Following the pandemic shortages, TSMC is also building subsidized projects in the United States and Japan to ensure regional supplies.

Approval for state aid under Europe's 43 billion euro Chips Act has been slow in coming, with only STMicroelectronics projects in France and Italy previously winning grants.

The largest European chips project still seeking approval is a 30 billion euro plant planned by Intel in Magdeburg, Germany that won't break ground this year as initially planned.

Completion of the Intel plant, which would be Europe’s only plant making the most advanced computer chips, is expected 4-5 years after EU approval.

An Intel spokesperson said the company is "working closely with our EU government partners ... (to) execute on our plans."

($1 = 0.9024 euros)

(Reporting by Hakan Ersen in Dresden, Sudip Kar-Gupta in Brussels, Andrey Sychev in Gdansk, Toby Sterling in Amsterdam; Editing by Kirsten Donovan, Rachel More and David Evans)