Wolfspeed could miss out on millions in CHIPS Act benefits for new NC plant

Tribune Content Agency

Wolfspeed, the semiconductor chip manufacturer based in North Carolina’s Research Triangle Park, is asking the U.S. Treasury Department to reconsider which companies qualify for a lucrative federal tax credit created under last summer’s CHIPS Act. Without the change, Wolfspeed officials say their company will be excluded from key funding for its planned $5 billion facility in Chatham County, North Carolina.

In August, Congress passed the CHIPS Act, which set aside $52 billion in grants for domestic producers of semiconductors. The legislation also established an investment tax credit for eligible manufacturers to subsidize 25% of their project costs.

Wolfspeed officials say the company is eligible for the CHIPS Act grant payments, which will be administered by the U.S. Department of Commerce. But the CHIPS Act tax credit is overseen by the Treasury Department, and Wolfspeed says its Chatham project doesn’t meet the proposed standards for the 25% subsidy.

On a $5 billion facility, that tax credit is worth a lot.

“There’s a little bit of misalignment in the proposed rulemaking (between the two federal departments),” said Jessica Pearson, global tax director at Wolfspeed.

On May 9, Wolfspeed general counsel Bradley Kohn submitted a 12-page comment to the Internal Revenue Service and the Treasury Department, requesting the latter change its proposed definition on tax credit eligibility. Kohn wrote that the current language excludes Wolfspeed “despite Congressional intent within the statute to ensure such facilities benefit from all CHIPS Act incentives.”

In spelling out its eligibility rules, the Treasury Department did not include manufacturers of “compound semiconductor wafers,” which is Wolfspeed’s specialty.

Semiconductor chips power a wide range of appliances like phones, medical equipment and cars. Standard chips are made from silicon, but Wolfspeed produces a unique type of semiconductor material made out of silicon carbide, a combination of silicon and carbon.

The company grows its own silicon carbide, then cuts the material into blank circular wafers, which it sells to other semiconductor manufacturers and fabricates into chips itself.

When will Treasury finalize its rule?

Global demand for silicon carbide has swelled in recent years as many credit the material as more efficient than regular silicon. Wolfspeed says the planned Chatham plant will increase its wafer production by 10 times.

“Our objective’s to replace all silicon devices with silicon carbide,” Wolfspeed cofounder John Edmond told The News & Observer in March, ahead of President Joe Biden’s visit to the company’s Durham, North Carolina, headquarters.

The Treasury Department closed its two-month comment period on May 22. It has not released a timeline for when it will announce final regulations.

Wolfspeed spokesperson Melinda Walker said “the rulemaking process of finalizing proposed regulations has, in general, taken at least six months historically, but it can take up to a year or even longer.”

“We are hopeful the Treasury Department will work expeditiously to finalize the regulations in order to provide clarity on the investment tax credits available to companies like Wolfspeed who are investing to support American jobs, economic and national security, resilient, domestic supply chains and sustainability,” Walker wrote in an email.

Wolfspeed has two facilities in Durham and is slated to occupy 445 acres for its Chatham project.

Wolfspeed’s other funding avenues

In September, the North Carolina Economic Investment Committee awarded the company a $76.1 million job development investment grant, or JDIG, to be paid out in future payroll tax breaks. To benefit from the full incentive package, Wolfspeed must create at least 1,802 jobs between 2026 and 2030 with an average minimum wage of $77,753.

On an April 26 earnings call, Wolfspeed chief financial officer Neill Reynolds hinted the company is well-positioned to receive federal grant funding through the CHIPS Act.

“While we cannot comment on the timing or certainty of any government funding, we believe we have made great progress in this regard,” he said.

But Reynolds told investors Wolfspeed still sought an additional $1 billion in nongovernment financing by the end of 2023 to meet its capital expenditure goals in North Carolina for the year.