Germany scrambles to save face after Intel delays major chip plant

Intel’s decision to delay its highly anticipated chip factory projects in Germany and Poland by two years has stirred both disappointment and debate across Europe.

The US chipmaker, facing lower-than-expected demand for its products, announced on Monday that it would delay the construction of factories by two years, dealing a blow to the heavily subsidised ventures that were seen as crucial to bolstering the EU’s semiconductor production.

The delayed projects come after months of negotiations over increased subsidies.

In Germany, Intel had secured nearly $11,1 billion in government support — about $3,3 billion more than initially pledged — to jumpstart the $33 billion chip factory in Magdeburg.

Construction was set to begin in 2023 but stalled as inflation, driven by the war in Ukraine, complicated the financing talks.

Poland had similarly committed $1.8 billion for a semiconductor factory near Wroclaw, hoping to capitalise on Europe’s push to reduce reliance on Asian chip manufacturers.

The projects were part of the EU’s broader effort to safeguard its tech industries after pandemic-induced shortages and geopolitical tensions underscored the risks of supply chain dependency.

Despite the setback, German Chancellor Olaf Scholz reassured the public on Tuesday that Intel remains committed to its plans in Germany, noting that the delay was purely a "business decision".

“It is important for us to take this opportunity to expand our semiconductor capacities in Germany,” Scholz said, emphasising that the project is still expected to proceed after the two-year hiatus.

Economy Minister Robert Habeck echoed Scholz’s sentiments, stating that Germany remains focused on building up semiconductor production in Europe.

Broader discussions

However, the delay has also sparked a budgetary dispute within Germany’s ruling coalition.

The finance ministry suggested reallocating the unused Intel subsidies to balance the federal budget, while the economy ministry advocated for maintaining the funds for future investment.

This debate has led to broader discussions about the direction of Germany’s economic policy, with economists calling for the unused subsidies to be repurposed for tax reform.

Experts argue that the money could be better spent on incentivising investment through tax credits that benefit a wider range of businesses, rather than concentrating resources on politically prioritised projects.

While Intel’s European ventures face delays, its US plans remain unaffected.

The company announced it would continue receiving up to $3 billion in direct funding from the US government as part of efforts to secure the domestic chip supply chain, particularly for military use.

Intel also pledged to work with the Department of Defence to enhance the resilience of US technological systems.