Infineon plant in Villach: New chips for Europe?

The shortage of semiconductors has been slowing the automotive industry and other parts of the industry for months. The EU is desperately looking for new production capacities. Today Infineon opens a new plant in Austria. Is that enough?

Most people associate Carinthia with a holiday at Lake Wörthersee or on the Gerlitzen ski slopes. Now the small federal state in the south-east of Austria is becoming the new beacon of hope for the auto industry. Because in Villach – at the border triangle between Austria, Italy and Slovenia – a new Infineon chip factory is opening today. It is supposed to alleviate the semiconductor shortage in the auto industry.

Infineon plant finished earlier than planned

The factory goes into operation three months earlier than planned. “It is phenomenal to be able to start up the new plant so quickly in this situation,” says a pleased Thomas Reisinger. The production manager of the Austrian Infineon subsidiary successfully pushed the project forward within three years.

With the new plant, Infineon wants to accelerate electric mobility in particular. The factory can equip a good 25 million electric cars with power semiconductors every year.

The chip slump will end in 2022 at the earliest

Infineon’s new system is unlikely to change the global scarcity of chips. The industry does not expect normalization until 2022. Daimler boss Ola Källenius does not even expect the situation to ease until 2023. This year alone, a good five million fewer cars are likely to be built due to the lack of chips.

The auto industry itself is partly to blame for the shortage of semiconductors. During the Corona crisis, it cut down on orders from semiconductor manufacturers. Instead, the IT industry ordered more semiconductors to meet the growing demand for tablets, notebooks, game consoles and software in the home office. When the car market picked up again, the capacities had already been allocated elsewhere. Now most automakers are missing the chips – with the exception of Tesla.

Production stops in Japan and Malaysia

The chip crisis was exacerbated by production stops in factories. There was a fire in a Japanese chip factory owned by Renesas. And production in the Malaysian chip factories has been paralyzed since August – due to lockdowns after new corona outbreaks.

It takes revenge that the leading chip giants are all in Asia. World market leader TSMC is based in Taiwan. The number two in the industry, Samsung, comes from South Korea.

EU wants to make itself more independent from Asia

In order to free himself from this dependence on Asia, EU Internal Market Commissioner Thierry Breton has been trying for months to expand production capacities in Europe. Brussels dreams of an “Airbus of Chips”. Breton has set the goal of producing a fifth of the chips it needs on the old continent by 2030.

We are still a long way from that at the moment. The EU’s share of the global chip market is currently less than ten percent. Only one company from Europe is among the ten largest chip manufacturers: Infineon.

The USA and China have a chip investment duel

Europe could be left even more behind in the near future because the US and China are engaged in a multi-billion dollar competition for chip investments. US President Joe Biden wants to boost domestic chip production with a good 52 billion dollars. China is even planning $ 1.4 trillion in funding programs for technologies such as the chip industry.

In the EU, however, the new chip funding program has still not been implemented. The industry is gradually losing patience. “The gap between announcements and implementation is too big,” complains the industry association Silicon Saxony. “We urgently need more speed and reliability at EU level.”

Intel wants to build mega-factory in Europe

After all, the chip giants are now also flirting with factories in Europe. Intel wants to build one of its eight large chip mega-factories there. The semiconductor giant is investing 80 billion euros in this. However, up to 24 billion euros in government subsidies are necessary. By the end of the year, Intel will decide which European location it has chosen.

Even the world market leader TSMC is considering building its first factory in Europe. Germany is being seriously examined as a location, said the head of the world’s largest contract manufacturer recently.

Europe’s chip metropolis is Dresden

Most recently, Bosch and Infineon expanded European chip production – in Dresden. The Saxon metropolis is developing into the leading European semiconductor location. Globalfoundries operates the largest chip factory in Europe to date in “Silicon Saxony” with a good 3,000 employees.

The chip manufacturers cannot keep up with the rapidly increasing demand. The French-Italian STMicroelectronics will be able to process a maximum of 70 percent of the orders this year. The factories are in full swing, but the semiconductors can only be delivered with a delay. “None of us have ever experienced anything like this,” says Georg Birkmaier from Globalfoundries.

The Infineon Group, which does most of the business with car chips, is also feeling the doldrums. “The inventories are at an all-time low,” said CEO Reinhard Ploss recently. “Delivery problems remain omnipresent, we fight for every additional wafer.”

Pwc: The recovery of the chip market will be delayed

Pwc Strategy & consultants do not believe that the chip market will recover in the next year for the auto industry. The expansion of the chip production facilities takes up to two years, the construction of new plants even five years. In addition, the auto industry is in a weak negotiating position. Compared to the ICT industry, car manufacturers are only a small customer. The world market leader TSMC, for example, only makes around three percent of its sales with the automotive industry.

Car manufacturers urgently need to develop a chip strategy and seek close partnerships with semiconductor manufacturers, advises Pwc Strategy & expert Marcus Gloger. Due to the increasing demand for e-cars and assistance systems, the need for chips is growing. “80 percent of all innovations in the car are based on software,” says Gloger. “Without semiconductors there is no software.” Expert Gloger predicts rosy times for the semiconductor industry. So far there has always been a cycle with ups and downs. This now seems interrupted.