By Ben Blanchard
TAIPEI (Reuters) - Taiwan chipmaker TSMC's talks with the German state of Saxony about building a new factory are at an advanced stage and are now focused on government subsidies to support the investment, two people familiar with the matter said.
TSMC, the world's largest contract chipmaker and Asia's most valuable listed company, flagged in 2021 that it was in the early stages of reviewing a potential expansion into EU member Germany, in what would be its first European plant.
The European Union last year unveiled the European Chips Act to ease government funding rules for semiconductor plants, as the bloc tries to guarantee supplies after a chip shortage and supply chain bottlenecks during the COVID-19 pandemic.
One person briefed on the matter said talks between TSMC and Saxony are "serious and advanced", and delegations from the eastern German state with its capital in Dresden, have been coming to Taiwan for talks with TSMC.
Given the higher costs associated with building in Germany, including for labour, TSMC has been discussing subsidies it could get in return for building the factory, said the person, who declined to be identified because the talks are private.
TSMC said in December that there was "no concrete plan" to build a chip factory in Germany.
In January, TSMC CEO C.C. Wei said the company was talking to customers and partners about building an automotive-focused plant in Europe based on customer demand and the level of government support. TSMC declined to comment further.
The EU has been courting Taiwan as one of the "like-minded" partners it would like to work with to build new plants to shore up chip supplies.
The German and Saxony governments are willing to give subsidies but they also need further EU funds, the second person familiar with the situation said.
"Without subsidies nobody will come," the person added.
The Saxony government said decisions about building plants would be taken by companies, but added it was always in talks with leading firms about investing further in the region.
Saxony officials discussed the EU Chips Act with EU Commission President Ursula von der Leyen on March 6 in Brussels, according to the state government.
Germany's economy ministry said it could not comment on individual company plans, but noted the federal government was willing to support and promote semiconductor production projects under the European Chips Act.
The European Commission declined to comment.
TSMC is already expanding internationally. It has committed $40 billion to build a chip factory in the U.S. state of Arizona, and is also building one in Japan and considering a second one there.
The Arizona factory, among the largest foreign investments in U.S. history, will start production in 2024, using advanced 5-nanometre technology. Construction was announced after the U.S. passed a law granting $53 billion in subsidies and tax credits for the chips industry.
TSMC's German factory, if is goes ahead, will likely produce less advanced chips, especially those used in the auto industry, the first person said.
"These are the kinds of chips German industry needs," the person added.
(This story has been corrected to remove the reference to EU state aid bans in paragraph 3)