Chancellor Olaf Scholz's government has a new plan to mobilize another 20 billion euros dedicated to boosting semiconductor manufacturing. The sector has become a matter of life and death for all world powers, after the US-China trade war and, above all, after covid, when supply chains were blown up. Germany has already committed around $17 billion to secure the construction of Intel, TSMC, Infineon and ZF/Wolfspeed factories.

Berlin plans to earmark much of its $170 billion Economic Transformation and Climate Protection megafund to boost the chip and semiconductor manufacturing race. It is the most powerful vehicle in the country and is funded until 2026 from the federal budget. Scholz's government aims to modernize the German economy so that it does not get trapped again, as happened in the last chip crisis, which directly hit the powerful car industry. 

The fund known by its acronym in English as KTF was originally created to invest in the decarbonization of the economy. The fate of the megafund is being negotiated with its allies within the government and the final design will be published in the coming weeks.

A global race to attract the production of chips, an element that may be key in the economy of the future, in particular for the electric car, but also for computers, mobile phones or almost any electronic object. 

"Currently, the draft of the 2024 economic plan and the financial plan until 2027 for the Climate and Transformation Fund are being prepared," the Ministry of Finance has confirmed. 

All these investments come in the midst of a geopolitical race between the world's largest economies to take positions in global industry and thus ensure not only a new source of income and jobs, but also ensure the supply of the rest of the industries of an element that will be key in the future. Joe Biden, president of the United States, said after presenting his Chip Law that "we need to attract factories to reduce the day-to-day costs of our industry." Despite the country's production data (12% according to McKinsey) the reality is that the most advanced chips are only produced in Asia. "China is trying to get ahead of us because we now produce 0%, but we must be world leaders."

The United States was the first country to jump into the race with the Chips and Science Act last year. The administration mobilized $50 billion, including $39 billion in direct aid for the construction of semiconductor factories and another $10 billion for research.

The European Union as a whole agreed in April a plan of 43,000 million euros in aid for the semiconductor industry. The goal, according to the club of 27, is for the bloc to produce 20% of the world's chips by 2030. So far, until 2027, the European Commission has approved 8.1 billion euros of state aid, generating 13.7 billion euros of additional private investment.

The German green plan for chips

The government has already agreed 10 billion euros in aid for a new Intel plant and is in the process of agreeing around 7 billion euros more in subsidies to companies such as TSMC, Infineon and the partnership of ZF and Wolfspeed.

Right now Germany is pulling the substance of the Environmental Plan for industry. This support still leaves at least €3 billion available for additional projects. This injection of liquidity could benefit other companies already active in Germany. GlobalFoundries has a sizeable presence in Dresden, while German supplier Bosch also has a chip plant in the city.

Berlin has mapped out its new strategy to reduce its dependence on China, diversifying and attracting future technologies such as semiconductors.

Germany's automakers and other companies struggled to secure chip supplies at the height of the pandemic, prompting a renewed push to expand local semiconductor production.

The government is in the final stages of negotiations with TSMC, the world's largest Taiwanese contract chipmaker, to invest in a plant in Dresden in eastern Germany.

Germany is preparing another factory in Saarland that will be worth 750 million euros

Scholz's management has earmarked around 1 billion euros for Infineon, around 20% of the investment in a new semiconductor factory in Dresden. German auto supplier ZF Friedrichshafen and U.S. chipmaker Wolfspeed will also get public money to build a factory for the production of silicon carbide chips in the state of Saarland, near the border with France. The joint venture is seeking subsidies for around 25% of costs, which would amount to about €750 million.