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EU approves Italian aid for $5.4 billion STMicro chip plant, more to come

By Toby Sterling and Diana Mandia

CATANIA, Italy (Reuters) -The European Commission on Friday approved Italian state aid for STMicroelectronics to build a 5 billion euro ($5.4 billion) microchip plant in the country, as Europe battles to reduce reliance on Asian imports of vital components.

The French-Italian semiconductor maker's proposed plant in Catania, Sicily, will receive a direct grant of about 2 billion euros from Rome to make specialist microchips that boost energy efficiency in electric cars.

Massive supply chain disruptions during the pandemic and a rise in trade tensions with China have heightened scrutiny of Europe's reliance on Asia for chip supplies, with recent disruptions on the Red Sea trade route adding to concerns.

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With the United States also offering big incentives to try to attract chip manufacturers, the EU has responded with its own Chips Act, seeking to do the same for components vital to hi-tech industries from computing to carmaking.

EU antitrust chief Margrethe Vestager said the approved state aid demonstrates the bloc's determination to ensure supply of such materials.

"I think it's really important that we do this, because it's also signalling to the rest of the world, you should not build up capacity to think that you can own this market, because it's so strategically important to us not to have single supplier dependencies," Vestager told a press conference in Catania.

STMicro is the only company that has so far received state aid grants under the EU's Chips Act, as major projects announced by Intel and TSMC in Germany are still awaiting approval, but Vestager said that is set to change.

"I'm absolutely sure that there will be more investments also in other states and I think they will also come relatively soon, but I cannot tell you (exactly when)", she said.

The Italian and French governments are the major shareholders in STMicro, holding a joint stake of 27.51%.

The new plant will be the group's second facility on the Italian island, and Italy's Economic Development minister Adolfo Urso said it would create 3,000 additional jobs.

The STMicro plant will produce chips made from silicon carbide, which are more expensive than standard silicon chips, but favoured by automakers because they are energy-efficient, lightweight and tough.

STMicro CEO Jean-Marc Chery said the plans show the company's confidence that recent weakness in the electric vehicle market is temporary and that silicon carbide chips will become more widely adopted.

He said the plant will begin producing chips in 2026 and will be operating at full capacity in 2033.

STMicro is the largest maker of silicon carbide chips, with customers including Tesla, BYD, BMW and Renault.

($1 = 0.9241 euros)

(Reporting by Toby Sterling; Additional reporting by Diana Mandia and Tassilo Hummel; Editing by Mark Potter and David Holmes)