Brussels, Munich The conclusion of the industry representatives is devastating: The intended race to catch up will not succeed with the European Chips Act, said Iris Plöger, member of the executive board of the Federation of German Industries (BDI). “The expansion of semiconductor production is likely to shift even more to the USA.” In her view, it would have required significantly more money and larger steps to reduce bureaucracy and promote skilled workers.
The EU definitely wants to play a part in semiconductor production again. The EU legislators therefore agreed on a Chips Act on Wednesday. The aim of the law is to double Europe’s share of the fast-growing world market for chips from around 10 to 20 percent.
In essence, it is about more public money for the industry. A total of 3.3 billion euros are to be invested from the EU budget by 2027, in addition to 2.6 billion euros that are already available. More money comes from national budgets, and the EU is relaxing rules on subsidies. A total of 43 billion euros in public money is to flow.
Actually, the EU is intent on limiting subsidies in the economy in order to avoid a race between the EU states. But it is currently making more and more exceptions: for critical raw materials, for green technologies and now also for semiconductors.
The background is the experience from the corona crisis and the Russian attack on Ukraine. Because of disrupted supply chains, European companies were suddenly without chips, without which many modern products cannot function. The EU no longer wants to rely on imports.
That is why the Chips Act also contains a clause that has led to protests from business: According to this, the subsidized factories can be obliged to give preferential treatment to deliveries to EU companies in the event of a crisis. In order for the law to come into force, it now has to be finally passed by Parliament and the Council. But that is considered a formality.
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And even now it seems to be having an effect. Since the proposal was presented in February 2022, chipmakers have presented investment plans ranging from 90 to 100 billion euros.
Germany is also benefiting: the US manufacturer Wolfspeed is building in Saarland, and the Dax group Infineon in Dresden. The American competitor Intel has announced a major project in Magdeburg, but is still haggling with the federal government about the amount of state subsidies. In addition, major new works with public funding are emerging in Europe in France and Italy.
In addition, the Taiwanese contract manufacturer TSMC is considering investing in Dresden. However, negotiations with buyers and authorities are still ongoing. According to media reports from Asia, TSMC could bring a partner on board, most recently the automotive supplier Bosch. The Swabians operate their own plant on the Elbe.
US investing more in chip production
Whether the EU’s plans are sufficient to catch up with other regions of the world remains to be seen. The Chips Act allows faster approval processes for the construction of factories. But the USA are also currently trying to locate chip factories.
“The USA already presented their Chips and Science Act in the summer of 2022 and freed up funding of 52.7 billion US dollars,” said the President of the Bitkom industry association, Achim Berg: “Europe is comparatively late and throws less into the scale”. It is all the more important that Europe does not lose any time in implementing the Chips Act.
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The law was not only criticized because fewer funds were made available than in the USA. There is also a fear that billions of tax dollars will be wasted. Recently, however, these voices have been getting through less and less.
The main point of contention was whether the EU should also invest in chips with structure sizes below 20 nanometers. These are particularly small chips, like those used in mobile phones. So far, there has been little demand for this in European industry. But now their promotion is the focus of the Chips Act.
>> Read here: Why TSMC is having such difficulties with the decision for a European chip factory
Industry observers consider the subsidies for new chip factories in Europe to be quite sensible. “Regional semiconductor production is to be welcomed in Europe. Because the region is becoming less dependent on deliveries from overseas,” said Jan-Hinnerk Mohr, chip expert at the consulting firm BCG. “At the same time, added value is increasing, and Europe is also becoming more innovative.”
Mohr emphasizes that more and more companies in Europe are using chips. This goes far beyond the classic IT industry and ranges from car manufacturers to producers of washing machines: “Due to the sharp increase in the number of semiconductors in many products, the demand for chips in Europe is also growing.”
The semiconductor industry is currently struggling with a slump. However, this is no reason not to encourage manufacturers’ investments, the consultant believes: “The chip industry is cyclical. In the long term, however, the industry has always grown and will continue to do so in the future.”
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