INTEL is seeking an additional 4 billion (S$5.7 billion) to 5 billion euros in subsidies from the German government to move ahead with a chip manufacturing complex in the eastern part of the country, according to people familiar with the matter.

The chip designer had already reached a deal to build a plant in Magdeburg with 6.8 billion euros in government subsidies, subject to approval from the European Commission. But it postponed the start of construction on the project at the end of last year due to economic headwinds and is now looking for more aid, said the people, who asked not to be identified because the information isn’t public. Shares fell 1.8 per cent to US$25.53 at about 3.30 pm in New York.

“Disruptions in the global economy have resulted in increased costs, from construction materials to energy,” Santa Clara, California-based Intel said in a statement. “We appreciate the constructive dialogue with the federal government to address the cost gap that exists with building in other locations and make this project globally competitive.”

Under chief executive Pat Gelsinger, Intel has embarked on a massive build-out of new production aimed at regaining leadership of the semiconductor industry and helping rebalance the concentration of manufacturing in East Asia.

Its Germany project is facing delays just as the US is pressuring other nations to help keep China’s chipmaking abilities from advancing. Last year, the European Commission announced a plan, called the EU Chips Act, to pour 43 billion euros into the semiconductor industry on the continent. The US similarly laid out a US$50 billion plan to subsidise its own domestic production.

Intel is competing with rivals including Taiwan Semiconductor Manufacturing and Samsung Electronics for this government aid, making early approval of projects vital. The company announced an expansion across Europe last year that, at the time, was worth 33 billion euros, including a research centre in France and an expansion of its existing chip facility in Ireland.

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Chief among the plans was the chip production site that Magdeburg would become home to after it outbid other sites across Europe. Since Russia’s war in Ukraine broke out in early 2022, however, energy prices in Europe have proven extremely volatile and inflation has sent construction costs soaring.

The German economic ministry declined to comment on its discussions with Intel, but pointed to the EU’s goal of producing 20 per cent of the world’s semiconductors by 2030.

“With this goal in mind, the federal government is prepared to support the semiconductor industry in Germany with several billion euros and to enable new factories to be set up,” it said. The ministry said that any additional funding would need approval from the European Commission.

Intel had originally estimated that the project in Germany would cost 17 billion euros but now expects to spend 30 billion, according to the people familiar with the situation. Like most projects that will receive government funding through the EU’s Chips Act, Intel was expecting roughly 40 per cent its project to be subsidised, people familiar with the situation said. While the company was expecting government funds, they said, it’s also open to other sources of government aid including tax breaks or energy subsidies.

Intel’s expansions in Ireland and France, meanwhile, remain largely on track, according to people familiar with the projects. BLOOMBERG