TSMC CFO Wendell Huang says the chipmaker now expects to pay more for power in Taiwan than anywhere else; TSMC's electricity prices rose 25% in April 2024
Kathrin Hille / Financial Times :
Context & Ripple Effects
TSMC had already linked manufacturing economics to geography, saying it would charge more for chips made outside Taiwan because of a fragmented global environment. The new power-cost outlook shows that Taiwan-based production is no longer insulated from a major input-cost increase.
That pressure arrives as TSMC prepares for heavier investment, including its later planned increase in 2025 capital spending, making utility costs relevant both to current fab margins and to the economics of incremental capacity.
First-order effects
- TSMC faces a higher operating-cost base in Taiwan after the reported 25% electricity-price rise, adding pressure to margins at its core manufacturing footprint.
- The company must incorporate power costs alongside the stated margin dilution from overseas-fab ramp-ups when setting production economics and customer pricing.
Second-order effects
- Chip customers may face more persistent cost pass-through pressure: TSMC had already signaled higher prices for production outside Taiwan, while Taiwan power costs reduce the contrast between domestic and overseas manufacturing costs.
- Power availability and tariffs become more consequential inputs for fab-location and expansion decisions, alongside capital commitments and supply-chain resilience.
Third-order effects
- If electricity costs continue to rise, advanced-chip manufacturing increasingly competes on access to reliable, affordable power—not only process technology and labor—making energy policy part of semiconductor competitiveness.
- The pattern supports a more geographically diversified but structurally higher-cost chip supply chain, with the extent of price pass-through depending on customer demand and TSMC's ability to preserve margins.
The trend: Power is becoming a binding economic constraint on semiconductor capacity as fabs expand across more locations and utility costs reshape manufacturing economics.