May 20. 2024. 10:58

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Intel raises state aid bar for Germany mega fabs amid subsidy race


Chipmaker Intel wants more than the €6.8 billion promised by Berlin to build two mega fabs- state-of-the-art microchip factories- in Germany, according to media reports.

However, the German economic ministry refused to confirm these numbers. “The discussion is still ongoing,” a government spokesperson told EURACTIV.

Originally, the construction of the Intel factories at the Magdeburg site was scheduled to begin in the first half of 2023, but the company later postponed the date to 2024.

In March 2022, Intel, the world’s third-largest chip producer, announced a massive €33 billion investment in Europe to expand its existing factories and establish new facilities across the continent.

The lion’s share of the investment is two mega fabs expected to employ 3,000 workers directly and generate 7,000 jobs for suppliers, for a total investment worth €17 billion. If confirmed, the new state aid allocation would raise the public share of the investment from 40 to 58%, more than half.

US chip manufacturer Intel announces €33bn investment in Europe

The investment will support the establishment of a new mega fab in Germany, the expansion of an existing factory in Ireland, an R&D and design hub in France, and production and research capacities in Italy, Spain and Poland.

Mind the gap

In December, Sven Schulze, Saxony-Anhalt’s state minister for economic affairs, told EURACTIV that state aid was only one of the factors that made Magdeburg stand out among 80 other sites. He cited green energy, political stability, and infrastructural quality as favourable conditions.

However, the investment, which initially generated euphoria at the regional and federal level, seems called into question by a raging subsidy race with global powerhouses like the United States, which passed a massive semiconductor package last year to boost its domestic research and production.

Benjamin Barteder, an Intel spokesperson, declined to comment on the media revelations but admitted that since the investment plans were first announced, the situation has changed due to geopolitical challenges, a decline in semiconductor demand, and raging inflation.

“We are trying to close the significant cost gap with other competitive locations outside the EU. In this current environment, that gap has grown,” Barteder told EURACTIV. “We are working very closely with government partners on the best way to advance the project in the current environment.”

These public initiatives were an initial reaction to a global semiconductor shortage due to the surge in the demand for electronic devices after the COVID-19 pandemic. However, chips quickly became an object of geopolitical leverage as Washington used export control restrictions to cripple China’s technological sector.

Inside a German state’s bid to become the European hub for chipmaking

Available lands, renewable energy and political stability are all part of the German recipe to attract chip production on its territory, together with the deep pockets to heavily subsidise these costly investments, a German state minister told EURACTIV.

Global subsidy race

The EU reacted with the European Chips Act, a legal framework regulating the conditions for providing state aid to finance state-of-the-art mega fabs. However, as the EU Council and Parliament prepare to engage in interinstitutional negotiations on the file, the elephant in the room will remain the limited budget that falls short of Europe’s grand ambitions.

The EU Chips Act earmarked €3.3 billion for R&D investments, a figure European governments would like to reduce further. The state aid part is entirely in the hands of the member states, prompting concerns that only those with the deepest pockets would benefit from the initiative.

Still, Europe’s financial capacity seems to be dwarfed by the American subsidy allocation of $52 billion. Brussels and Washington repeatedly committed to avoiding a subsidy race in the EU-US Trade and Technology Council context.

However, the situation changed as the Biden administration decided to pass the US Inflation Reduction Act, a massive subsidy package that many in the EU see as a direct threat to the European industrial basis, especially car manufacturers.

Moreover, Europe has seen its energy prices skyrocket as Russia used its gas supply as political leverage following its attack on Ukraine. Chipmaking is a highly energy-intensive industry, giving manufacturers another reason to be lured into the United States.

“The competing chips policies in Europe, the US and other large economies have created a subsidy race. Germany can compete in this race, but it’s much less clear for smaller and poorer member states,” said Niclas Frederic Poitiers, a research fellow at the think tank Bruegel, told EURACTIV.

“If the rules for such state aid are weakened further in response to the IRA, this could lead to a fragmentation of the single market.”

Czech presidency seeks Council’s position on Chips Act with reduced budget

With six weeks before the end of its EU Council presidency, Prague is trying to set the outstanding differences among member states in the European chip legislation by reducing the budget by €400 million and opening up funding allocation to different contractual arrangements.

What now

The growth in energy prices, which increased more than four times in the last year, and in construction costs in Germany are allegedly the justification Intel provided to request the additional funding from tax-payer money.

According to Handelsblatt, Intel raised the issue with the German Federal Ministry of Economy a few weeks ago, causing disgruntlement as the federal government does not seem to think Intel’s calculation only refers to energy costs but to a more advanced technology the company wants to use.

Berlin is in a tough spot as the state aid figure had already been fixed in the federal budget, with no financial leeway to change it. The next meeting is expected to take place on Friday. The overall project does not seem to be at risk at the moment.