Mohit Oberoi
Taiwan Semiconductor Manufacturing or TSMC would announce the opening of a second chip plant in Arizona and increase its investment in the state from $12 billion to $40 billion.
President Joe Biden would also join TSMC at the event as he tries to showcase the results of the CHIPS and Science Act which he signed in August. Under the law, the US proposed billions of dollars in incentives to lure onshoring of chip production.
The COVID-19 pandemic and the resultant supply chain crisis exposed the vulnerabilities in US supply chains. The Biden administration had to eventually call upon Taiwan to increase chip supplies to the US as the country’s automotive production took a hit from the shortages of semiconductors.
The Biden administration is looking to support domestic manufacturing of chips as they are crucial for the country’s manufacturing ecosystem. Additionally, it has imposed restrictions on exports of high-end chips to China.
Coming back to TSMC’s investment, they show that the Biden administration’s policies are bearing fruit. Along with encouraging semiconductor production, the Biden administration is also looking to revamp the country’s green energy ecosystem.
The Inflation Reduction Act of 2022 mandates gradual localized sourcing of batteries in order to qualify for the EV (electric vehicle) tax credit. Soon after the law was passed, Toyota announced additional investments in the US to produce car batteries.
Tesla would be among the beneficiaries of the Inflation Reduction Act as its vehicles would be eligible for the EV tax credit from 2023. Many analysts turned bullish on Tesla stock after the Act was passed. There is a guide on buying Tesla stock.
TSMC to Announce Second US Chip Plant
Meanwhile, TSMC’s second chip plant in the US would help the country onshore chip production. Ronnie Chatterji, acting deputy director for Industrial Policy at National Economic Council said, “At scale, these two [factories] could meet the entire U.S. demand for U.S. chips when they’re completed. That’s the definition of supply chain resilience. We won’t have to rely on anyone else to make the chips we need.”
Countries globally are looking to increase domestic chip production. India is also providing subsidies for encouraging semiconductor production in the country. Indian stocks are outperforming global markets this year and have hit record highs despite the slump in global markets. We have a guide on how beginners can buy stocks in India with a regulated broker.
Berkshire Hathaway Bought TSMC Stock in the Third Quarter
Chip stocks have slumped this year amid concerns over overcapacity. Sales of smartphones and PCs have fallen this year and companies are cutting production to clear inventories.
While several Wall Street analysts are bullish on chip stocks, Berkshire Hathaway chairman Warren Buffett surprised markets by making a multi-billion-dollar investment in TSMC in the third quarter of 2022.
Buffett has also loaded up on energy stocks this year. He also bought more Apple shares in the first half of 2022. TSMC also makes chips for Apple and reports suggest that Apple would use chips made at TSMC’s Arizona plants as well.
Chip Demand is Expected to Soar
Chip demand is expected to soar over the next decade amid strong demand from car companies as well as autonomous driving companies. As more devices and gadgets turn high-tech, chip demand would also rise commensurately.
While there indeed looks short-term oversupply of chips, especially those that go into consumer electronics products, over the long-term chip demand should increase considerably from these levels.
After losing out on manufacturing to Asian companies, the US is now trying to support domestic manufacturing and TSMC’s second plant would help achieve those goals.
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This article was written for Business 2 Community by Mohit Oberoi.
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