TMTPOST--Taiwan Semiconductor Manufacturing Co. ( TSMC ) has officially started construction on its first European facility, a € 10 billion ( $11 billion ) plant in eastern Germany, as Europe aims to bolster its semiconductor supply in response to escalating U.S.-China tensions.

At a groundbreaking ceremony in Dresden on Tuesday, German Chancellor Olaf Scholz emphasized the strategic importance of semiconductors for Europe's future technologies.

"We are dependent on semiconductors for our sustainable future technologies, but we must not be dependent on other regions of the world for their supply," Scholz said. Approximately half of the plant's cost will be subsidized by the German government.

Germany is at the forefront of the European Union's goal to produce 20% of the world ’ s semiconductors by 2030. This initiative is part of a broader effort by the bloc to strengthen its semiconductor production capacity.

The U.S., Japan, and other nations are also heavily investing in local semiconductor production to secure critical components for industries ranging from artificial intelligence to consumer electronics.

TSMC, the world ’ s largest contract chipmaker, supplies chips to major companies such as Apple Inc. and Nvidia. The Dresden facility will primarily focus on producing chips for the automotive and industrial sectors. TSMC will hold a 70% stake in the plant, with the remaining 30% shared among partners Infineon Technologies AG, NXP Semiconductors NV, and Robert Bosch, each holding a 10% stake.

The event was also attended by TSMC CEO C.C. Wei, European Commission President Ursula von der Leyen, and top executives from TSMC's partner companies. Scholz has positioned himself as a strong advocate for Europe's semiconductor industry, seeking to enhance Germany ’ s technological infrastructure and secure a stable supply of chips for its manufacturing sector.

The German government has committed € 20 billion to support domestic semiconductor production, including € 5 billion in subsidies for the Dresden facility and € 10 billion in aid for a planned Intel Corp. plant in Magdeburg. The European Commission has approved Germany ’ s subsidy package for the TSMC plant.

The Dresden plant, scheduled to begin production by late 2027, is expected to reduce Europe ’ s reliance on Asian imports of crucial technologies. German automakers, including Volkswagen and Porsche, have expressed strong interest in increasing domestic chip production.

Semiconductor manufacturing became a top priority for governments globally after the Covid-19 pandemic exposed vulnerabilities in supply chains. Chip shortages disrupted industries worldwide, particularly the automotive sector, which took years to recover.

The intensifying geopolitical divide between the U.S.   and China has further escalated the stakes. China, the largest consumer of semiconductors, is striving to enhance its domestic chip production capabilities, while the U.S.   has imposed export restrictions and tariffs to slow China's progress, citing national security concerns.

TSMC ’ s expansion into Europe comes as the company diversifies its operations outside of Taiwan, amid concerns over potential conflicts in the region. In addition to the German plant, TSMC recently opened its first facility in Japan and has committed to building three advanced plants in Arizona, with total investments surpassing $65 billion.