A project to build a €3bn factory making microchips for electric vehicles once hailed as part of a “return of the industrial revolution” in Germany has been put on hold, as the crisis in the country’s hi-tech manufacturing industry deepens.
The US company Wolfspeed and the German car parts supplier ZF have postponed plans to build an EV chip factory, adding to problems caused by a delay to two large-scale factories belonging to the US chip giant Intel and possible factory closures being considered by Volkswagen.
Wolfspeed and ZF have put the project, in Ensdorf, in the western state of Saarland, on hold due to disappointing consumer demand. The US company said that “solid progress” in production at its domestic factories had also led to the decision to suspend the German plans.
“With our improved productivity, coupled with the currently forecasted slower ramp of the EV marketplace, we believe we have the capacity we need for the foreseeable future,” a company spokesperson said.
A ZF spokesperson said it had been the US company that had taken the decision not to move ahead with construction, which was originally slated to begin in summer 2023 and eventually employ up to 1,000 people.
“After Wolfspeed delayed the factory project in Ensdorf indefinitely, the planned Wolfspeed-ZF cooperation on the factory is now on ice,” the spokesperson said in an statement.
The suspension of the project compounds the bleak national economic outlook signalled by the International Monetary Fund on Tuesday. The organisation said German economic growth would flatline this year and climb just 0.8% in 2025, making it the worst performer among highly industrialised countries.
A slowdown in demand for electric vehicles has sent a chill through the European manufacturing sector, causing a further headache for carmakers, including Wolfsburg-based Volkswagen, struggling to adapt to the transition away from fossil fuels.
Last month, Intel said it would delay work on two big factories in the eastern German city of Magdeburg, planned at a cost of €30bn (£25bn), for which it agreed €10bn in subsidies with the German government.
The company cited a cost-cutting drive, due to global complications in boosting semiconductor production, for the freeze in plans intended to make Europe less dependent on Asia in the sector.
In February 2023, Wolfspeed and ZF said in the presence of Germany’s chancellor, Olaf Scholz, and the economy minister, Robert Habeck, they would build the “world’s largest, most advanced” silicon carbide components factory at a cost of €2.75bn. Federal and state subsidies were slated to amount to €515m.
At the time, Scholz hailed the project as part of a “return of the industrial revolution” to Germany.
The newspaper Frankfurter Allgemeine reported that, in addition to slack demand, Wolfspeed had been hit by technical difficulties at its US plants and experienced a dramatic slump in its share price in the last two years.
ZF, whose electromobility division has reported severe problems, plans to cut a quarter of its 54,000-strong German workforce by 2028 in the face of slow demand for EVs. It had planned to contribute about €170m to the Wolfspeed joint venture.
The suspension of the plant project is also a severe setback for the small state of Saarland, on the French border, which had undergone a successful transformation over several decades away from coal mining and weathered the steel crisis, with the help of the automotive industry. The Ensdorf research and development centre had been scheduled to be built on the site of a former coal-fired power plant.
The US carmaker Ford recently announced plans to stop production in the state.
Scholz, a Social Democrat whose three-way coalition has been hobbled by infighting and sinking popularity, has been attempting to jumpstart the flagging German economy in cooperation with industry.
On Wednesday, the magazine Der Spiegel ran an article with the stark headline “Is mass unemployment coming back?”, citing fears of the kind of catastrophic slump last seen in the early years of the millennium, as companies including BASF, Thyssenkrupp and Miele cut well-paid positions.
With the jobless rate expected to reach 5.9% this year, Scholz has faced calls for ambitious reforms including eliminating bureaucratic hurdles, reforming the tax system and promoting measures to address Germany’s looming demographic crunch.