Project to build German EV microchip factory put on hold

In a recent interview, representatives from US-based Wolfspeed and German automotive supplier ZF discussed their decision to postpone plans for a €3 billion electric vehicle (EV) chip factory, a project that was initially regarded as a pivotal part of Germany’s industrial resurgence.

The duo revealed that the project, intended for Ensdorf in Saarland, has been stalled due to weak consumer demand and challenges facing Germany’s high-tech manufacturing sector. A Wolfspeed spokesperson explained, “We’ve made solid progress in our domestic factories, which has influenced our decision to halt developments in Germany. Given our improved productivity and the expected slower growth in the EV market, we believe we have sufficient capacity in the foreseeable future.”

ZF corroborated that Wolfspeed was the driving force behind the postponement, which had initially aimed for construction to commence in the summer of 2023, eventually planning to create up to 1,000 jobs. A ZF spokesperson noted, “After Wolfspeed’s indefinite delay, our collaboration on the factory is currently on ice.”

This decision adds to the mounting concerns over the broader economic landscape in Germany, which the International Monetary Fund (IMF) warned is likely to stagnate this year, with a projected growth of only 0.8% in 2025. This places Germany among the worst performers in the industrialized world.

The slowdown in EV demand has had a ripple effect throughout Europe’s manufacturing sector, particularly affecting major car manufacturers like Volkswagen, as they attempt to pivot away from fossil fuels.

Intel also announced delays in its plans for two major factories in Magdeburg, citing a need for cost-cutting measures amidst global semiconductor production challenges. Originally, the construction of these factories was expected to significantly reduce Europe’s dependency on Asian semiconductor supply.

When Wolfspeed and ZF unveiled their ambitious plans back in February 2023, during a ceremony attended by Chancellor Olaf Scholz and Economy Minister Robert Habeck, they voiced aspirations to create the “world’s largest, most advanced” factory for silicon carbide components, with anticipated federal and state subsidies of approximately €515 million. At that time, Scholz celebrated the initiative as part of a “return of the industrial revolution” for Germany.

However, recent reports, including those from the Frankfurter Allgemeine, suggest that Wolfspeed has encountered not only diminished demand but also technical difficulties within its US facilities, resulting in a significant decline in its stock price over the past two years. Meanwhile, ZF’s electromobility division has faced extensive problems, leading the company to announce substantial workforce reductions in Germany by 2028.

This pause in the factory plans represents a considerable setback for Saarland, a region that had successfully transitioned from coal mining to a more diverse industrial economy. The proposed site for the factory was located on a former coal-fired power plant.

Additionally, Ford’s recent announcement to cease production in the state further underscores the challenges facing the local economy. Amid these trials, Chancellor Scholz has been striving to revitalize growth through collaboration with the industrial sector.

As concerns about rising unemployment loom—projected to hit 5.9% this year—Scholz has been urged to implement ambitious reforms aimed at dismantling bureaucratic obstacles, overhauling the tax system, and addressing Germany’s impending demographic challenges. Recent discussions in the media, such as an article from Der Spiegel titled “Is mass unemployment coming back?”, echo widespread fears about potential economic downturns reminiscent of the early 2000s.