The EU Chips Act – Flash in the pan or a sustainable solution?

Publish Date

24 APR 2022


Kai Beckmann


In February, the EU Commission announced the European Chips Act. The plan is to mobilize more than € 43 billion from EU funds and member countries in order to strengthen semiconductor technology capacities and increase the EU’s share of global semiconductor production.

The EU's share of global semiconductor production is expected to rise from currently less than 10 percent to around 20 percent by 2030. In my opinion, this is fundamentally the right move, although a very ambitious goal in view of the fact that major investments are also being made in all other leading semiconductor markets, in some cases to an even greater extent than in Europe. However, with a suitable strategy, the EU Chips Act can definitely advance the European semiconductor industry.

Automotive sector on a rally drive

Since 2020, industry and consumers have seen what happens when a shortage of raw materials, high demand during a pandemic, and geopolitical tensions lead to severe semiconductor supply chain bottlenecks. Take the automotive industry, which is highly important for Europe, as an example. According to SEMI, in 2021 this industry already accounted for 10% of the global semiconductor market, worth US$ 555 billion. In 2030, this share is even expected to increase to around 14%, with the market having grown to more than US$ 1 billion by then. The average mid-size car already uses several thousand semiconductors whereas a fully electric luxury car needs significantly more than 10,000. However, due to the lack of chips, many cars can currently only be ordered in slimmed-down versions, if they can be ordered at all. The fact that vehicles are being sold with analog instead of digital displays, or that ordered special features such as the head-up display are missing in order to save semiconductors, represent only a small portion of the damage. The number of cars that could not be produced at all due to the chip shortage is estimated to total more than 7 million in 2021 alone.

Realistic goals or wishful thinking?

Strengthening the EU's technological sovereignty in the field of semiconductor technologies and applications is certainly one of the reasons for the initiative by the EU Commission. However, it is perfectly clear that the investments won’t take effect at short notice or be large enough to shift the balance of power in the global semiconductor market towards Europe. In this context, it’s worth taking a look at the investment programs of other economies that dominate the semiconductor market:

  • The U.S. Congress has passed legislative proposals to promote semiconductor research and production worth more than US$ 50 billion for the years 2022-2026.
  • Taiwan’s semiconductor industry is the world’s second largest. The declared aim is to produce the most advanced chip technologies locally so as to maintain technology leadership. Back in 2019, the government had announced a successful program for companies that wish to repatriate capacities.
  • South Korea has been investing billions for decades to support its semiconductor industry.
  • China wishes to reduce its dependency on semiconductors produced abroad after having imported semiconductors with a value of around US$ 450 billion in 2021 alone. To establish its own semiconductor ecosystem, China is investing large sums of money. According to Germany Trade & Invest, subsidies earmarked here amount to around US$ 170 billion over a period of nearly ten years.

Focusing on Europe’s strengths

Training, research, development and innovation: It is essential for Europe to have enough engineers, scientists and expert technicians. And not only to develop and produce semiconductors themselves, but also to support highly innovative suppliers, whose R&D work on equipment and materials is helping to make semiconductors increasingly powerful. After all, Europe is already a world leader here, and with the IMEC in Belgium, Europe has one of the largest R&D hubs for nano- and digital technologies. In addition, the EU brings together multiple countries with a variety of strengths and many competencies. Why not use this diversity more purposefully, for instance in a larger number of interdisciplinary and cross-border research collaborations?

Specialization: European companies are the leaders in specialized semiconductors, for instance for the Industrial Internet of Things (IIOT), automation and the automotive industry. It might make more sense to provide greater funding to secure and/or expand these leadership positions than to focus on application areas in which other countries are not light years, but several chip generations ahead of Europe.

Shaping transformation together with industry

With the right objectives and strategy, the initiative by the EU Commission is indeed a positive one. As a partner and supplier to the global semiconductor industry, we truly welcomes this. After all, the chip crisis shows that it’s in everyone’s interest to establish a global network of semiconductor expertise beyond Asia and North America. The recent decision announced by Intel to invest up to € 80 billion in multiple European countries in the coming decade and to kick this off by constructing two flagship semiconductor fabs in Magdeburg in eastern Germany is definitely a step in the right direction. However, we call on the EU to include at an early stage not only those representing the interests of the participating European industries, but also the European companies that have been gaining international experience for decades in the highly volatile semiconductor market. We are looking forward to the exchange and the opportunity to support this initiative.

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