Taiwan Semiconductor Faces Rising Energy Costs, Potential Outages Threaten Production

Taiwan Semiconductor Manufacturing Co TSM remains vulnerable to Taiwan’s surging electricity prices, a shift that could impact the semiconductor industry.

Once a competitive edge, Taiwan’s low-cost energy has become more challenging to maintain, leading to increased costs for major industrial consumers, the Financial Times reports.

Taiwan Semiconductor now anticipates that electricity expenses in Taiwan will surpass those in its other significant locations, including the U.S., Japan, and Germany.

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Recent reports indicated the chipmaker will double its advanced packaging capacity by 2025, largely to meet the rising demand for AI chips from major tech firms like Nvidia Corp NVDA and Microsoft Corp MSFT. The company’s CoWoS packaging technology is in high demand, with Nvidia expected to use more than half of the expanded capacity.

CFO Wendell Huang recently disclosed to investors that power costs in Taiwan have effectively doubled over the past few years and will likely be Taiwan Semiconductor’s highest globally by 2024.

Taiwan’s government has raised electricity prices four times since 2022, with increases primarily affecting industrial users like Taiwan Semiconductor.

In line with its broader energy transition, Taiwan aims to boost renewable energy to supply up to 30% of its power by 2030. However, a recent emphasis on scaling back coal and nuclear power has made it increasingly challenging to meet industrial demands.

According to FT, Taiwan relies on coal and liquefied natural gas for over 80% of its energy supply, with renewable sources accounting for only 9.5%.

The rising electricity rates alone may not significantly hinder Taiwan Semiconductor’s operations, as power costs constitute a minor portion of its overall expenses. However, consistent supply disruptions could threaten Taiwan Semiconductor’s ability to expand its production capacity in Taiwan, FT writes.

Taiwan Semiconductor stock has gained 89% year-to-date. Investors can gain exposure to the stock through the iShares Semiconductor ETF SOXX and the First Trust NASDAQ Technology Dividend Index Fund TDIV.

Price Actions: TSM stock traded higher by 1.17% to $193.80 premarket at the last check on Tuesday.

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