Intel wants Germany to give it an extra $5 billion in subsidies to build a chips factory

The chip designer had already reached a deal to build a plant in Magdeburg with 6.8 billion euros ($7.2 billion) in government subsidies, subject to approval from the European Commission. But it postponed the start of construction on the project at the end of last year due to economic headwinds and is now looking for more aid, said the people, who asked not to be identified because the information isn’t public. 

“Disruptions in the global economy have resulted in increased costs, from construction materials to energy,” Santa Clara, California-based Intel said in a statement. “We appreciate the constructive dialogue with the federal government to address the cost gap that exists with building in other locations and make this project globally competitive.”

Intel announced a massive expansion plan across Europe last year that, at the time, was worth 33 billion euros, including a research center in France and an expansion of its existing chip facility in Ireland. Chief among the plans was the chip production site that Magdeburg would become home to after it outbid other sites across Europe. Since Russia’s war in Ukraine broke out in early 2022, energy prices in Europe have proven extremely volatile, skyrocketing last year to record levels. Inflation has also sent the costs of construction and materials soaring. 

The German economic ministry declined to comment on its discussions with Intel, but pointed to the EU’s goal of producing 20% of the world’s semiconductors by 2030. 

“With this goal in mind, the federal government is prepared to support the semiconductor industry in Germany with several billion euros and to enable new factories to be set up,” it said. The ministry said that any additional funding would need approval from the European Commission.

Under Chief Executive Pat Gelsinger, Intel has embarked on a massive build out of new production aimed at regaining leadership of the semiconductor industry and helping rebalance the concentration of manufacture of the crucial components in East Asia. Intel is in competition with rivals including Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. for government aid being offered in the US and Europe, making early approval, funding and commencement of the projects vital.

Intel had originally estimated that the project in Germany would cost 17 billion euros but now expects to spend 30 billion, according to the people familiar with the situation. Like most projects that will receive government funding through the EU’s Chips Act, Intel was expecting roughly 40% its project to be subsidized, people familiar with the situation said. While the company was expecting government funds, they said, it’s also open to other sources of government aid including tax breaks or energy subsidies.

Intel’s expansions in Ireland and France, meanwhile, remain largely on track, according to people familiar with the projects.