Taiwan chipmaker breaking ground in Europe amid China threat

Next week, Taiwan Semiconductor Manufacturing Company, TSMC, the world’s top advanced computer chipmaker, is expected to break ground on its first European factory in Dresden, Germany, as it seeks to diversify production from Taiwan and threats from China.

TSMC is the biggest supplier of semiconductor chips used in everything from computers to cars and medical equipment. The company will run the nearly $11 billion plant, holding a 70% stake. The joint venture that includes minority investors Robert Bosch, Infineon Technologies and NXP Semiconductors, will be called European Semiconductor Manufacturing Company, or ESMC.

Dresden’s mayor’s office confirmed to VOA that the ground-breaking ceremony will take place August 20 and that ESMC is the largest ever investment project in Germany’s Saxony region.

Analysts say Beijing’s threats against Taiwan have spurred TSMC to diversify from the self-governing island, which Beijing considers a breakaway province that must one day reunite with China, by force if necessary.

TSMC is already building a new factory in Arizona, with a total investment of $65 billion in the U.S., and constructing a nearly $9 billion plant in Japan.

Anna Rita Ferrara, an Italian political and international law adviser for research organizations, told VOA, “TSMC’s investment in Germany and the U.S.A. is a strategic move that allows the microchip industry to stay ahead in case China invades Taiwan. Relocating production to two major Western cities [Dresden and Phoenix] would help protect the Western IT sector from a dangerous supply reduction and a possible technological debacle.”

TSMC has a $3 billion Chinese mainland factory in Nanjing that has been producing less advanced chips since 2016.

TSMC has a 61.7% market share in the global semiconductor market, while second-place Samsung has an 11% market share, according to Statista, a European statistics platform.

The Dresden plant is scheduled to go into operation in 2027, with a monthly output of 40,000 chips, including 12-nanometer automotive chips, which are more advanced than those made in Taiwan.

The Taiwanese chip giant did not immediately respond to VOA’s requests for comment on the Dresden-based plant’s opening and importance to diversifying from Taiwan in the face of China’s threats.

According to Reuters, TSMC’s chairman, C. C. Wei, told reporters in June that the company had discussed moving factories outside of Taiwan, but called it impossible because up to 90% of its production is based in Taiwan. “Instability across the Taiwan Straits is indeed a consideration for supply chain,” he was quoted as saying, “but I want to say that we certainly do not want wars to happen.”

As China has repeated its threats to force Taiwan’s reunification, Europe and the U.S. have been working to attract domestic chip production to reduce their dependence on imports from Taiwan.

The U.S. passed the Chips Act in 2022 to invest $39 billion to support chip companies in building factories. The European Union’s Chips Act last year followed with its own plans to invest $47 billion to increase the share of European chip production to 20% of the world by 2030.

Stefan Uhlig, deputy director and senior consultant of Silicon Saxony, the German region’s semiconductor industry association, told VOA, “TSMC is coming to the EU because of the EU Chips Act, which is in place to attract technologies to the EU which are not here.”

Uhlig said one-third of European semiconductors come from Saxony. “The region is known as Silicon Saxony and recognized as such in Europe and around the globe. Many places around the globe are chip hot spots, some larger production-capacity-wise but none is larger in terms of different chip manufacturers in one place.”

Enrico Cau, an associate researcher at the Taiwan Centre for International Strategic Studies, told VOA having a factory in Europe is certainly part of TSMC’s global plan to improve the resilience of the supply chain and logistics, and it will also help bring the entire supply chain closer to where chips are needed.

“It is unclear how these new plants will affect Taiwan in the long term under certain conditions,” he said. “For example, in case of critical disruptions of supply chains due to war, natural disasters, or even energy shortages, (especially with the new AI industry developing as a second core sector on the island and requiring much more power), that force(s) TSMC to also relocate the cutting edge manufacturing out of the island, temporarily or for longer periods of time.”

TSMC’s electricity consumption currently accounts for about 8% of all power in Taiwan.

The company accounted for about 8% of Taiwan’s GDP in 2022, Bloomberg reported, while its market value was more than $800 billion, ranking ninth in the world and surpassing companies such as Tesla, JPMorgan Chase, and Walmart, and far exceeding semiconductor peers such as Intel and Samsung.

Analysts say TSMC’s diversifying production could also boost Taiwan’s soft power on the world stage, where Beijing has sought to squeeze Taipei.

Marcin Mateusz Jerzewski, director of the Taiwan office of the European Center for Values and Security Policy, told VOA that TSMC has undeniably enhanced Taiwan’s global standing.

“As the world’s leading dedicated semiconductor foundry, TSMC embodies technological excellence and innovation, significantly bolstering Taiwan’s soft power on the international stage,” he said. “However, the burgeoning reliance on TSMC poses a nuanced dilemma for Taiwan’s international standing, as the country’s global perception increasingly hinges on the success of this singular entity. This overdependence necessitates a strategic reassessment to ensure sustainable economic and diplomatic engagement.”

Jerzewski noted that while TSMC accounts for a large chunk of Taiwan’s economy, it mainly relies on small and medium-sized enterprises, which he said the government should help to invest in democratic countries to strengthen their ties and reduce the risk of over-reliance on a single corporate entity.

Adrianna Zhang contributed to this report.