The US$11 billion Dresden facility will boost Germany’s automotive chipmaking capabilities and give TSMC a foothold on the European continent.

Taiwan Semiconductor Manufacturing Co. (TSMC) announced in August that it would build a US$11 billion fab in Germany, its first facility in Europe and third outside Taiwan and China.  

The fab will be constructed in the city of Dresden in the eastern state of Saxony, which was the cradle of microelectronics manufacturing in the former East Germany and has since evolved into a leading European chipmaking hub. TSMC’s joint venture partners in Germany – semiconductor companies Infineon, X-Fab, and Bosch – are all present in the region known as “Silicon Saxony.” TSMC will hold 70% of the venture, while the other three companies will hold 10% each.  

Unlike TSMC’s American facility, which is now under construction in Arizona, the fab will not produce the most cutting-edge chips. Nevertheless, it represents a major win for Germany, as it will boost domestic chipmaking manufacturing capacity for the automotive and other industrial sectors. The fab will have a monthly production capacity of 40,000 300-mm (12-inch) wafers, “further strengthening Europe’s semiconductor manufacturing ecosystem…and creating about 2,000 direct high-tech professional jobs,” Taipei-based market research firm TrendForce said in an August research note.  

With the establishment of a TSMC fab, “Germany will have more confidence in its ability to guarantee supply of certain types of semiconductors,” says Chris Miller, an economic historian at Tufts University and author of the book Chip War: The Fight for the World’s Most Critical Technology. “Moreover, the facility will bolster Germany’s semiconductor ecosystem.”  

For TSMC, the fab will provide a foothold on the European continent, a move the company sees as paying commercial dividends. “Europe is a highly promising place for semiconductor innovation, particularly in the automotive and industrial fields, and we look forward to bringing those innovations to life on our advanced silicon technology with the talent in Europe,” TSMC Chief Executive Officer CC Wei said in a statement. 

There are geopolitical considerations behind the expansion as well. The Taiwan government has sought stronger European diplomatic support in the face of rising tensions with China. A TSMC fab in Germany will deepen the economic ties that bind Taiwan with the European Union, highlighting the link between the island’s security and Europe’s prosperity.   

“The United States, Japan, and now Germany – TSMC’s decision to expand to Europe represents another major step in Taiwan’s techno-diplomacy strategy,” says J. Travis Mosier, an adjunct fellow at the Center for a New American Security (CNAS) and former official at the Department of Commerce, where he specialized in semiconductor supply chain resilience. The strategy taps R&D and innovation ecosystems in key customer markets and proliferates semiconductor incentive programs, he adds.  

In a similar vein to TSMC’s U.S. and Japan expansions, the Dresden fab came about thanks to a mix of customer needs and government support. Automotive chips account for only 7% of TSMC’s revenue – well below high-performance computing (44%) and smartphones (34%). But the company’s earnings reports show that automotive chips are the only part of its business that has grown in both the first and second quarters this year – by 5% and 3%, respectively – amid a global slump in microelectronics demand. Automotive chips have also more than doubled as a share of TSMC’s overall revenue since late 2020. The automotive segment could generate as much as NT$140 billion (US$4.56 billion) of TSMC’s estimated NT$2 trillion in sales this year, according to technology supply chain tracker DigiTimes.  

“Customer demand is the top priority in overseas investment,” while factors such as the completeness of the local supply chain, construction and operation costs, HR support, and government subsidies “are significant considerations,” says Cheng Kai-an, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC) in Taipei.  

In this case, strong demand from NXP and Infineon prompted the German government to “express willingness to provide TSMC with essential subsidies. This makes Germany an attractive industrial environment for TSMC to establish this new fab.”  

Government support for the Dresden fab has been substantial. Germany’s Economy Ministry said in July that Berlin planned to invest about €20 billion (US$21.6 billion) in the semiconductor industry in the coming years. Of that sum, American multinational semiconductor company Intel will receive about €10 billion for the construction of two fabs in the country. The amount TSMC will receive has not been disclosed. However, GlobalFoundries CEO Tom Caulfield told Reuters in July that TSMC is “getting billions of euros,” which he said will lead to market distortions as other chipmakers are expected to also ask for more subsidies as a result.  

In an August report, Bloomberg said that TSMC could receive up to €5 billion in subsidies from the German government. In addition, the European Commission has committed €43 billion to its Chips Act, which aims to boost Europe’s share of the global semiconductor market from less than 10% to 20% by 2030.  

Long-term perspective 

Given the strategic and geopolitical considerations in play, it may be many years before the results of TSMC’s expansion to Germany can be fairly evaluated. The earliest milestone will be whether the Dresden fab can launch mass production on schedule in 2027. The next one will be whether Europe achieves its desired global semiconductor market share by the dawn of the next decade. 

Joanne Chiao, an analyst at TrendForce, reckons that the Dresden fab could encounter some of the same challenges as TSMC’s Arizona facility. In July, TSMC said it was pushing back the start of 4-nanometer chip production there from 2024 to 2025 due to a lack of skilled workers. With an eye on minimizing production delays, TSMC is planning to send technicians from Taiwan to train local workers. Though the company has said it will dispatch the Taiwanese technicians on a temporary basis, a local union launched an online petition in August asking Arizona lawmakers “to block TSMC from replacing more than 500 American workers.”  

In Germany, “the execution phase will face more challenges” than the planning phase, Chiao says, since “the labor shortage issue encountered by the U.S. factory is likely a global challenge.” She adds that implementing the European Chips Act’s subsidy policies will also require navigating through complex administrative processes.  

For his part, MIC’s Cheng foresees a need for TSMC and its joint venture partners to manage differences between Taiwanese and German work culture. Germany has one of the shortest work weeks in Europe at 34.2 hours, according to Eurostat, the EU’s statistical office. While German workers put in around 1,350 annual hours, Taiwanese workers put in an average of 2,000 hours in 2021, making Taiwan fourth in the world in terms of work hours, according to the Ministry of Labor.  

Even in the United States, where people work longer days and take shorter vacations than in Germany, TSMC has faced backlash. On Glassdoor, a website where employees anonymously review employers, TSMC Arizona receives 2.4 out of 5 stars, with just 16% approving of the company’s CEO. Many of the negative comments focus on the company’s hard-charging work culture.  

At TSMC’s Dresden plant, “the operational mode of an eight-hour shift and weekend overtime support must be accepted to ensure smoother operations in the long run,” Cheng says.  

At the same time, TSMC has to contend with allegations by some Taiwanese opposition politicians – sometimes amplified by Chinese Communist Party (CCP) propaganda – that the ruling Democratic Progressive Party (DPP) is “hollowing out” Taiwan’s semiconductor industry by supporting the international expansion of its paramount chipmaker. While the assertions lack credibility, they have fed into a narrative the government has struggled to counter – that Chinese military pressure has created unacceptable risks for Taiwan-based semiconductor supply chains, hence the need for diversification.  

Part of the problem may lie in balancing economic and security considerations. Bloomberg reported in April that Taiwanese officials had privately asked their U.S. counterparts to cool the rhetoric about the risks of relying on TSMC chips. Yet that same month, Foreign Minister Joseph Wu said on the UK’s LBC Radio that Taiwan is “taking the Chinese military threat very seriously,” adding, “I think 2027 is the year we need to be very serious about.”  

While elevated cross-Strait tension remains likely for the foreseeable future, TSMC’s growing international expansion augurs well for both the company and Taiwan overall, analysts say. “I don’t think it is evidence that the Taiwanese chip industry is being hollowed out,” says Tufts’ Miller, noting that TSMC’s foreign investments still represent a small share of its overall capacity, and that it still produces most of its chips at home. “But the company is globalizing in a major way. I think this is a good thing for Taiwan.”  

Semiconductor analyst Mosier notes that TSMC has now made strategic investments in three of the world’s most important economies, in each case adjusting its approach to specific market needs and government policies.  

“TSMC, in partnership with European semiconductor companies Infineon, NXP, and Bosch, will support German industry at a crucial time as it works to transition to electric vehicles and other advanced manufacturing,” he says.  

Among the automakers with which TSMC has directly secured long-term contracts are Volkswagen, Mercedes-Benz, and BMW, according to DigiTimes. All three automakers are investing heavily in electric vehicles, with Volkswagen pledging a huge €180 billion between 2023 and 2027 on electrification and digitization.  

TSMC’s expansion strategy “creates goodwill among allies and partners by building resiliency where they need it most,” Mosier says. “This will benefit TSMC, Taiwan, and host regions overall in the long run.”