(Bloomberg) -- Auto supplier ZF Friedrichshafen AG and Wolfspeed Inc. plan to build a $3 billion wafer factory in Germany’s Saarland to make chips for electric vehicles and other applications, a boon for a region dependent on combustion-engine components, according to people familiar with the matter.

The go-ahead for the project is subject to commitments on subsidies amounting to a quarter of the total investment, the people said, declining to be named discussing private information. ZF will hold a minority share in the factory with its US chipmaking partner, located in Ensdorf near Saarbrücken. ZF operates its largest factory nearby where 9,000 employees make transmissions.  

The plan will see the site of a former coal-fired power plant converted into the world’s largest factory for silicon carbide semiconductors, used in electric vehicles and photovoltaic converters. The move will create hundreds of jobs, the people said, providing relief over concerns for Saarland state’s 40,000 auto industry workers, where many toil to make combustion engine parts.

ZF and Wolfspeed hope to get a final decision on subsidies within the next couple of months, the people said. The partners plan to start production of semiconductors in 2027 and reach full capacity by 2030. Spokespeople for ZF and Wolfspeed declined to comment on the plans. Handelsblatt earlier reported some details of the project. 

The wafer fab in Saarland will help the EU in its ambitious goal of producing 20% of the world’s chips by 2030. Germany’s progress luring international chipmakers has become tougher because of high energy prices and the pull of generous US subsidies under the Inflation Reduction Act. US chipmaker Intel Corp. has recently delayed the construction start of its €17 billion ($18.4 billion) semiconductor factory in Magdeburg. The company is in talks for more government subsidies to offset higher costs. 

The type of chips Wolfspeed will make can boost the range of electric vehicles by as much as 15% with faster charging compared to conventional silicon chips. In addition to the factory, ZF and Wolfspeed plan to set up a R&D center in Germany, where ZF will be the majority owner, the people said. The center will research applications of the chips in power inverters for electric ships or wind turbines.

Wolfspeed Chief Executive Officer Gregg Lowe said last year that the company was considering building a semiconductor factory in Germany, and that an investment decision would depend on the subsidies it received.

(Updates with earlier comments in last paragraph. An earlier version corrected the company’s name.)

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