Bangkok, Munich While Tesla is still fighting against the high import duties in India, the local manufacturer Tata Motors already has a firm grip on the business for electric cars on the subcontinent: with its Nexon EV model, the Mumbai–based group has a market share of more than 60 percent – and is barely able to meet the growing demand. Especially because of the lack of semiconductors, production cannot be started up quickly enough.
Faced with the problem that automakers are suffering from around the world, the Tata Group no longer wants to rely on suppliers from abroad: the head of the conglomerate, Natarajan Chandrasekaran, is planning his own chip factory. “We need the security of being able to have all the components for high-quality vehicles,” he said a few days ago at the presentation of a new electric car model.
The group, which is one of India’s largest companies with annual sales of more than $ 100 billion, is not alone in its plans: a number of international manufacturers have looked to India as a possible new semiconductor production site.
The companies are following the call of Prime Minister Narendra Modi, who wants to attract the chip industry with billions of dollars in subsidies. So far, the country has played virtually no role in chip production.
The government has already shown initial success: the ISMC chip consortium wants to invest three billion dollars in the construction of a chip factory in the southern state of Karnataka, as the local government announced at the beginning of May. The project is expected to create 1,500 jobs. ISMC is a joint venture between Abu Dhabi-based Next Orbit Ventures and Israeli contract manufacturer Tower Semiconductor, which is currently being acquired by Intel.
The Indian conglomerate Vedanta has signed a memorandum of understanding with the electronics group Foxconn for the joint production of semiconductors in India. Investments of up to $ 20 billion are planned for the factory, which will produce smartphone screens in addition to chips.
The company hopes for generous support for the project: according to media reports, it asks the local government to provide a 400-hectare plot of land free of charge and to grant discounts on electricity and water. A subsidy is also to be expected from the central government: it announced a ten billion dollar subsidy program in December.
Governments around the world are currently urging chip companies to produce in their own country and thus avoid the supply bottlenecks that have been going on for almost two years in the future. The number two in the chip industry, Intel, has already launched publicly funded billion-euro investments in the EU and the USA. “All market participants are now taking care of more resilient supply chains,” says Peter Fintl, chip expert at the consulting company Capgemini. “This means that everyone tends to be confronted with the rising costs. Therefore, the chances are greater than ever that the necessary measures will prevail on a broad basis in the industry.“
Semiconductor manufacturers are responding to the global chip shortage with huge investments in additional capacities. According to the industry association Semi, the producers want to invest $ 446 billion in the construction of new plants and additional production lines. For comparison: this corresponds approximately to the total turnover of the industry in 2020. The industry association refers to the volume of projects that will start in the years 2021 to 2023.
Chip industry doubles sales
According to market researchers, the industry’s turnover will almost double by the end of the decade. The good prospects are reflected in the plans of the companies. This year, manufacturers will spend $ 190 billion on new plants and machines, according to IC Insights. This is a good third more than in 2021.
However, the companies do not have to handle the huge sums alone. In the United States, President Joe Biden has introduced a bill to support the industry with $ 52 billion. The European Union (EU) has provided 43 billion euros in subsidies.
In Germany, the settlement of Intel in Magdeburg is probably supported by the state with a good five billion euros. The federal government wants to use 14 billion euros to encourage other chip companies to invest in Europe and Germany, said Federal Minister of Economics Robert Habeck (Greens) last week.
“Semiconductors play a key role in the world,” India’s Prime Minister Modi said at an industry conference in late April. The government estimates that the chip market in India will grow to a volume of $ 63 billion by 2026 – from $ 15 billion in 2020. “We are aware that adequate government support is crucial for the flourishing of the industry,” Modi said. In addition to Vedanta and ISMC, the Singapore-based technology company IGSS is also currently seeking government subsidies for the start of a chip production in India.
So far, Malaysia has been the favorite
So far, Malaysia has been the preferred location for Western chip companies that want to produce cheaply in Asia, but deliberately avoid China. Because the US is beginning to restrict high-tech exports to the country. And there is a growing fear in corporations of being deprived of their own know-how in China.
India hopes to achieve similar successes as in the mobile phone industry: with the help of targeted subsidies, the government managed to attract a number of manufacturers such as Samsung, Xiaomi and several Apple suppliers to the country. However, it is far from certain that the model can be repeated in the chip industry. Rakesh Kumar, a professor at the Department of Electrical and Information Engineering at the University of Illinois, is skeptical. “India lacks the specialized hardware ecosystems and skills that chip manufacturing needs,” he commented on the effort.