ZF Withdraws from Wolfspeed’s German Chip Plant

The German automotive industry has faced a significant setback following reports that ZF, one of the world’s leading automotive suppliers, will no longer participate in Wolfspeed’s planned $3 billion chip manufacturing plant in Saarland, Germany. Citing sources from government and industry, Handelsblatt reported on Tuesday that ZF’s withdrawal has thrown the project into uncertainty, a development that could hamper Europe’s broader ambition to boost its domestic semiconductor production and reduce reliance on Asian supply chains.

The Wolfspeed-ZF Partnership

Wolfspeed, a U.S.-based chipmaker specializing in silicon carbide (SiC) technology, had previously announced plans to build the chip plant and an accompanying research and development center. The factory, slated to start operations by 2027, was intended to manufacture chips critical for electric vehicles (EVs), a growing sector within the European automotive market. ZF’s involvement was critical to the project’s success, with the company committing approximately $185 million for a minority stake in the venture. This partnership was designed to create synergies between Wolfspeed’s chipmaking expertise and ZF’s automotive prowess, especially as both companies eyed the future of electric mobility.

The factory’s chips would play a crucial role in enhancing the efficiency of electric vehicle powertrains, a technology essential to automakers as they transition toward electrification. The project was seen as a major leap forward in securing a stable supply of silicon carbide chips, which have become increasingly vital in the manufacturing of electric vehicles due to their superior performance in high-temperature environments and higher energy efficiency.

The Impact of ZF’s Withdrawal

ZF’s reported withdrawal from the project casts a shadow on the plant’s future. Wolfspeed, which had already delayed the project earlier in 2023, is now facing the challenge of finding a new strategic partner or securing additional funding to keep the project afloat. While the plant has not been entirely scrapped, the financial commitment from ZF was significant for Wolfspeed’s plans and for the broader European push to strengthen its semiconductor manufacturing capabilities.

The German government, alongside the European Union, has long recognized the need to enhance the continent’s semiconductor capabilities, especially in light of recent global chip shortages and the growing dependency on Asian suppliers. The European Chips Act, introduced in 2022, aims to bolster local production and reduce the vulnerabilities faced by industries dependent on chips, such as automotive and consumer electronics. Wolfspeed’s plant in Saarland was a critical element of this strategy, but with ZF stepping back, it may signal larger issues for Europe’s semiconductor ambitions.

A Blow to Europe’s Semiconductor Strategy

The news of ZF’s exit comes at a time when the EU is intensifying efforts to expand its semiconductor industry. Europe’s share of global semiconductor manufacturing has dropped from 20% in 1990 to less than 10% today, creating an overreliance on Asia, especially Taiwan and South Korea. Wolfspeed’s project represented a cornerstone for re-establishing some of that lost manufacturing capacity within Europe, particularly for advanced chips crucial to electric vehicle production.

Additionally, Germany has positioned itself as a central player in Europe’s semiconductor strategy. The country has already attracted major investments from U.S. chip giant Intel, which plans to build a new factory in Magdeburg. Losing momentum on Wolfspeed’s Saarland project could have a ripple effect on Germany’s semiconductor ecosystem, potentially deterring future investments from key global players.

Next Steps for Wolfspeed and the EU

Wolfspeed has stated that it is still seeking funding for the plant, though details on potential new partners have yet to emerge. Without ZF’s contribution, the company may need to look elsewhere for investment, whether from the German government, European funds, or other private investors. However, securing another partner as reliable and industry-specific as ZF may prove challenging, especially within the current economic climate of higher interest rates and inflation.

The EU, on its part, may need to recalibrate its semiconductor strategy if major projects like Wolfspeed’s continue to face setbacks. The European Chips Act could play a larger role in providing financial incentives or accelerating regulatory approvals to ensure that similar projects are not abandoned altogether.

ZF’s decision to withdraw from Wolfspeed’s chip plant project in Germany could be a significant blow not only to the future of the Saarland plant but also to Europe’s semiconductor ambitions. As the EU strives to bolster domestic chip production, the loss of major partnerships like the one between Wolfspeed and ZF underscores the challenges ahead. Without robust local partnerships and continued investment, Europe risks falling further behind in the critical race to secure its semiconductor supply chain, particularly in the electric vehicle sector where these chips are vital.