FILE PHOTO: ZF logo is seen during Munich Auto Show, IAA Mobility 2021 in Munich, Germany, September 8, 2021. REUTERS/Wolfgang Rattay/File Photo
FRANKFURT (Reuters) -German automotive supplier ZF intends to withdraw from a planned $3 billion microchip manufacturing project with U.S. chipmaker Wolfspeed in western Germany, an industry source said on Tuesday.
The rethink followed Wolfspeed's decision to put the project on hold because of weaker than expected semiconductor demand and doubts whether its entry into the European market would be worthwhile, the source told Reuters.
ZF had been set to contribute $185 million for a stake in the Saarland plant, which was to make chips for electric cars.
Wolfspeed announced plans for the plant and a research and development centre in Germany in February 2023. If the plans are shelved, it would represent another setback for German efforts to sell the country as an attractive location for business.
ZF pushed back on media reports that it was responsible for delaying the project and declined to comment on its reported withdrawal.
"Wolfspeed is responsible for the project. ZF has always provided intensive and active support," a ZF spokesperson said in an emailed statement.
Wolfspeed and German economy ministry representatives were not available for comment.
The slow pace of electric car demand has put pressure on ZF, which has announced plans to cut a quarter of its 54,000 jobs in Germany by 2028. It also recently lowered its profit outlook.
CONSTRUCTION DELAYS
Reuters reported last June that Wolfspeed had delayed its plans, with funding still being sought and construction not set to start until mid-2025 at the earliest.
The plant was not scrapped entirely, a Wolfspeed spokesperson said at the time, adding that the company was focused on ramping up production in New York after spending cuts in response to weakness in the European and U.S. electric vehicle markets.
Companies including Intel, TSMC, Infineon and GlobalFoundries announced plans for new European plants in recent years. But in a sign of sector-wide struggles to increase semiconductor production, ZF rival Intel - which agreed nearly 10 billion euros in subsidies with the German government - said last month that it was delaying construction on a project in eastern Germany by two years as part of cost-cutting plans.
The setbacks come against a backdrop of efforts by German Chancellor Olaf Scholz to reinvigorate Europe's largest economy despite deindustrialisation in the face of high energy costs and regulatory hurdles.
"We need more growth. The pie has to get bigger again," Scholz told the BDA employers' association earlier on Tuesday, promising to work with industry to revive growth.
(Reporting by Ilona Wissenbach and Rene WagnerWriting by Miranda MurrayEditing by Rachel More, Kirsti Knolle and David Goodman)
