India secures foreign investment in semiconductor plants

New Delhi reverses fortunes in attracting foreign chip fabrication investment

India’s semiconductor industry is finally gaining momentum, following a faltering start in securing foreign investment. Late last month, India approved a proposal for an US$11 billion semiconductor fabrication facility from the Tata Group and Taiwan’s Powerchip Semiconductor Manufacturing Corp. – set to be the country’s first chip production plant. The facility, expected to start construction in the next three months, will be located in Prime Minister Modi’s home state of Gujarat and produce 50,000 wafers per month. New Delhi simultaneously approved a US$3.26 billion assembly and testing plant from the Tata Group in the northeastern state of Assam. This plant will process up to 48 million chips per day. Also approved was a US$920 million assembly and testing plant in Gujarat with a 15 million chip daily capacity from Japan’s Renesas Electronics, Thailand’s Stars Microelectronics and India’s CG Power. The projects are a boon for the government’s efforts to stimulate India’s domestic chip industry. Key to these ambitions is a US$10 billion program introduced in 2021 to subsidise half the cost of building semiconductor plants.

However, New Delhi’s plans haven’t been without issues. Previously, Taiwan’s Foxconn – the world’s largest electronics manufacturer – and India’s Vedanta were planning to construct a US$19 billion fabrication plant which fell through after Foxconn failed to find a suitable partner for chip design technology. Similarly, a US$3 billion fabrication plant from the UAE’s Next Orbit Ventures and Israel’s Tower Semiconductor, as well as a US$3 billion manufacturing facility from Singapore’s IGSS Ventures also failed to materialise due to the dearth of potential local partners. The recently approved plants will still face a significant challenge given they are up against highly subsidised East Asian and US competitors. The Indian business environment is not yet conducive to large-scale chip manufacturing given shortages of water, skilled workers and electricity, limited direct local experience in the industry, as well as high tariff barriers.

European auto makers double down on EV price reductions

Supply chains will not be entirely without Chinese involvement

The EU’s EV manufacturers are pressing forward with efforts to drive down the price of new models, as they attempt to address Chinese competition and consumer affordability concerns. Many companies are eyeing a sub €20,000 (US$22,000) price tag. Specifically, Renault plans to release the Twingo in two years for under €20,000 – this year’s Renault 5 will release for €25,000 (US$27,000). The company is also in talks with Volkswagen to jointly develop an EV for below €20,000 for release later this decade. Renault’s budget brand Dacia will release the Spring later this year for under €20,000. Similarly, Stellantis aims to release a sub-€20,000 EV by reducing the price of the Citroen e-C3 next year – currently on the market for €23,000 (US$25,000). Chinese EV makers enjoy numerous cost advantages including generous state subsidies, vast economies of scale and a pronounced first mover advantage. With the EU’s mandate to phase out the sale of ICE vehicles by 2035 and low tariffs, the European market is highly attractive for Chinese automakers at a time of intense price competition in China.

It is unlikely that the EU manufacturers will be able to avoid Chinese involvement in their supply chains when driving down prices. Dacia, for instance, will manufacture the Spring in China and export to Europe. The EU’s ongoing review into Chinese EV subsidies will be used by Brussels to impose tariffs on imports into the EU. However, Chinese brands may still be able to sell their vehicles at a sustainable price in Europe given their enormous advantage. Chinese-made EVs are typically 20 percent cheaper than similar EU-made vehicles. The EU would likely need to introduce significantly higher tariffs, establish preferential subsidies, or overhaul its overall industrial strategy if it is to effectively insulate European manufacturers from China.

Bangkok and Phom Penh move close to deal on offshore gas project in disputed maritime boundary

Each country seeking greater certainty on gas supplies

Thailand and Cambodia are ramping up negotiations on the shared development of a gas project in disputed waters, as concerns about energy security grow more paramount. The countries have overlapping claims to a 26,000 square kilometre area in the Gulf of Thailand. It likely contains rich oil and gas reserves due to its close proximity to the Erawan and Bongkot gas fields that have played a key part in Thailand’s energy security for several decades. Thailand expects the reserves to be worth around US$560 billion. The joint development of the fields has long been stalled largely due to border disputes – which also extended to the land domain. Between 2008 and 2011, Thailand deployed troops into parts of Cambodian territory after Cambodia successfully received recognition from UNESCO that the Temple of Preah Vihear was within its borders. However, lately Thai Prime Minister Thavisin and Cambodian Prime Minister Manet have conducted several meetings on the disputed maritime fields since both stepping into their positions last August. They have also handed concessions on the field to energy supermajors such as Chevron, ConocoPhillips, Shell and TotalEnergies.

The need for the countries to secure new energy supplies has given urgency to the revived negotiations. Thailand is heavily reliant on natural gas, which makes up 60 percent of its energy mix. However, the Erawan and Bongkot reserves have almost depleted. It has thus turned to pipeline imports, primarily from Myanmar. But supplies from Myanmar have been uncertain since the military coup in 2021 and subsequent Western sanctions on oil and gas projects. Spot prices in the global gas market also continue to be extremely volatile. High prices following the Russian invasion of Ukraine in 2022 served as a stark warning. Meanwhile, Cambodia is looking towards gas as a transition fuel as it looks to wean off of its 40 percent coal reliance.

Map of the undemarcated maritime area between Cambodia and Thailand