Germany is expected to get a big step forward in the semiconductor manufacturing sector by having Taiwan Semiconductor Manufacturing Co. on board.

TSMC, the world's largest contract chipmaker, committed €3.5 billion ($3.8 billion) on Tuesday to build its first factory in Europe. 

The plant, to be located in Dresden, will cost a total of $11 billion, and the German government is expected to provide subsidies, subject to approval by the European Union (EU). 

According to the Wall Street Journal, TSMC's German factory will be established as a joint venture with several EU chip companies such as Bosch, Infineon and NXP.

TSMC will operate the plant and hold a 70% stake in the joint venture, with the other three companies each holding 10%.

Construction is expected to start in the second half of 2024, with production beginning by the end of 2027, TSMC said, adding that the plant will specialize in the production of less advanced chips typically used in cars.

Since the German auto industry is a major customer of TSMC, the new factory will help TSMC get closer to customers, reduce its transportation costs and improve delivery times.

Western countries are seeking to strengthen their high-tech supply chains, especially in semiconductors, to reduce dependence on Asia, where approximately 80% of the world's chips are produced. Both the EU and the US have implemented the "Chip Act", trying to lure chip manufacturers to relocate their production lines to their own borders by providing subsidies and tax breaks.

Germany plans to invest around 20 billion euros in the semiconductor industry in the coming years. In August, Berlin struck a subsidy deal worth nearly 10 billion euros with US chipmaker Intel, which promised to build two chip manufacturing plants in Magdeburg.