Germany’s Silicon Saxony drives €10bn chip push as Europe seeks tech sovereignty

Berlin, Germany|| The eastern German state of Saxony is doubling down on its ambition to become Europe’s leading semiconductor hub, backing a €10 billion chip manufacturing project in Dresden as the European Union pushes to reduce reliance on non-European suppliers.

At the centre of the effort is a new fabrication plant by the European Semiconductor Manufacturing Company (ESMC), a joint venture involving Taiwan’s TSMC and European firms including Bosch, Infineon and NXP. The facility is expected to create around 2,000 high-skilled jobs and production will start in 2027.

Saxony is becoming a global semiconductor location in Europe, in addition to Asia and North America, said regional officials, while talking about investment in the area.

“The decisive factor is the ecosystem,” said Thomas Horn, managing director of Saxony Trade & Invest. “Companies come here because they find suppliers, research institutions and skilled workers already in place.”

The project comes as Europe seeks to strengthen domestic semiconductor production following supply disruptions during the COVID-19 pandemic and rising geopolitical tensions. The EU’s Chips Act aims to double the bloc’s share of global semiconductor output to 20 percent by 2030.

Saxony has positioned itself at the forefront of that strategy. The region is home to major chipmakers including Infineon and GlobalFoundries, and has the highest concentrations of semiconductor firms in Europe.

Officials in Dresden are also pushing for an expanded “Chips Act 2.0” that would extend support beyond manufacturing to include supply chains and materials.

“Semiconductors are the backbone of modern industry,” said a senior official at the Saxon State Chancellery. “Strengthening this sector is essential not only for Saxony, but for Europe’s competitiveness as a whole.”

From car hub to chip cluster

While Saxony has long been known for its automotive sector, with plants operated by Volkswagen, BMW and Porsche, officials say microelectronics is now the fastest-growing industry and could rival or surpass automotive in economic importance in the coming years.

The transition reflected broader changes in global manufacturing, including the shift to electric vehicles and digitalisation.

“Automotive remains very strong, but microelectronics is growing much faster,” Horn said. “This will reshape the industrial structure over time.”

Still, challenges remain. German industry is grappling with high energy costs, labour expenses and increasing competition from China, particularly in electric vehicles and clean technologies.

“There is no single challenge,” Horn said. “But cost pressures are clearly part of the debate. The answer must be better products and more innovation.”

Global competition, local strategy

Saxony’s pitch to investors centres on its integrated model, linking government, academia and industry, rather than competing on costs alone.

Officials said that this approach was key in attracting TSMC to Dresden, despite Germany’s relatively high labour costs.

“In this industry, labour costs are not the main driver,” Horn said. “What matters is access to technology, research and a reliable ecosystem.”

The region is also investing in international partnerships, aiming to position itself as a bridge between Western and Central and Eastern Europe, with strong ties to countries such as Poland and the Czech Republic.

At the same time, Saxony is recalibrating its global outreach strategy. Rather than seeking partnerships broadly, officials say they are becoming more selective, focusing on regions and sectors that align with long-term priorities.

“Twenty years ago, we were looking for partners around the world,” the senior official said. “Today, partners are coming to us. That changes how we define our strategy.”