EU Chips Act: how the EU intends to produce more semiconductors

Global EU share of chips production to rise to 20 percent

Semiconductor chips are essential components in countless electronic devices. They can be found in computers and smartphones, in watches and washing machines – and in modern motor vehicles. Many people only really became aware of this in the wake of the COVID-19 crisis and through the consequences of the war in Ukraine: when supplies - mainly from abroad - stalled, the German automotive industry suddenly experienced a shortage of semiconductors. In 2021, it had to cut production by a third. Other countries experienced similar difficulties.

It became clear that semiconductors are a geopolitical resource. In order to be better positioned and prepared for this eventuality in the future, the Parliament of the European Union has passed the so-called European Chips Act, or EU Chips Act for short. The law is intended to establish microchip production in the economic region, thus preventing supply bottlenecks.

So what is the main objective of the new law? The EU Chips Act aims to increase the EU's global market share of production capacity to 20 percent. Currently, the rate is significantly lower. According to Knometa Research's Global Wafer Capacity Report, Europe had a market share of 5 percent in December 2021. The leading nations are as follows:
 

1. South Korea (23 percent)
2. Taiwan (21 percent)
3. China (16 percent)
4. Japan (15 percent)
5. The Americas (North, Central and South America) (11 percent)

In order to catch up, the construction of semiconductor factories needs to be simplified and given a financial boost. This will also benefit projects by foreign investors and could have an impact on projects by Intel in Magdeburg, Wolfspeed in Saarland, Infineon and TSMC in Dresden. In addition, Ursula von der Leyen, President of the EU Commission, has announced partnerships with countries such as Australia, the USA and Canada.

The intention is for the EU to take a leading role in research and innovation, design, manufacturing and packaging. The focus is on the next generation of microchips with node sizes of two nanometers and below.

For the EU Chips Act, an initial 43 billion euros are planned to be allocated from private and public sources, mainly from the member states. The EU itself intends to have limited participation.

Other large national markets have similar aspirations and want to invest heavily in their own semiconductor production in the short to medium term:
 

• USA: $52 billion by 2026
• China: estimated $150 billion between 2015 and 2025
• Japan: at least $8 billion
• South Korea: $450 billion by 2030 through tax incentives

This is likely to make it more difficult for the EU to implement what it plans to achieve with the EU Chips Act.
 

Early warning system for supply crises

For the reasons mentioned above, many supply chains have been significantly disrupted and even interrupted. To prevent this from happening to the same extent in the future, the EU Chips Act includes a multi-stage emergency mechanism to improve security of supply.

Crisis preparedness

In order to make it easier to identify bottlenecks in the supply of semiconductors, a kind of early warning system is being established. The member states are to collect data that makes imminent risks more recognisable, and surveys of companies are also planned,  including manufacturers and suppliers as well as customers. This means that disruptions to supply chains should be detected earlier than before, and their consequences should at least be mitigated.

Crisis response

If, however, significant problems arise, a crisis is to be declared. In this case the European Chips Act provides for coordinated measures. This includes the prioritisation of orders for critical sectors, cooperative procurement and import controls. A European semiconductor committee, consisting of high-level representatives of the member states and the EU Commission,  is to take responsibility for the corresponding coordination and control.

In addition, further activities within the framework of semiconductor partnerships with suitable partner countries are planned, in order to make supply chains more resilient. These include a constant exchange of information, international standardisation, agreements on labour development, and increased cooperation in research.