Munich The industry is losing faith that Europe can still catch up in chips. “If we want to achieve the EU’s goal of 20 percent world market share in 2030, we have to increase production capacities fivefold,” said Gunther Kegel, President of the ZVEI industry association, to the Handelsblatt. “It takes a lot of imagination to imagine how we could do that.”
The ZVEI represents the interests of the electronics and digital industry in Germany, large chip companies such as Infineon, NXP or Bosch are members of the association. President Kegel is also the boss of the Mannheim sensor manufacturer Pepperl und Fuchs and is familiar with the business.
He also fears that Europe will decouple itself from China without building up alternative production capacities itself: “We have to stay in contact with China. Because the country has a very strong position in many areas, including the semiconductor industry: Every fourth chip is produced in China.” Individual chip types are even only available in the People’s Republic.
Chips have been missing for over two years
Time is of the essence when it comes to expanding European capacities. Currently, not even every tenth chip worldwide comes from European factories. Fewer chips are currently being produced in Europe than the industry needs, says Jan-Hinnerk Mohr, semiconductor expert at the Boston Consulting Group.
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The chip shortage in European industry has been going on for more than two years. He has to wait “more than two years” for individual components from the Far East, complains Rüdiger Stahl, managing director of the Bavarian electronics manufacturer TQ. “The situation has improved recently, but it’s still not normal.”
Nothing will change that any time soon. Europe is struggling to set up its own production facilities. The catch-up race for chips proclaimed by politicians at the beginning of last year has stalled before it has even really picked up speed.
Intel and Infineon lack binding commitments
In 2022, two leading chip companies, Intel and Infineon, announced that they would invest several billions in new plants in Germany. However, the commitments are subject to the proviso that sufficient funding is available. So far, the EU has not given its consent for this – although Commission President Ursula von der Leyen herself announced the chip offensive last spring.
In the meantime, leading chip nations such as the USA, Japan, South Korea and Taiwan have launched funding programs worth billions. Construction work has started in many places, and half a dozen huge plants are currently under construction in the USA.
It is unclear when Intel in Magdeburg and Infineon in Dresden will start construction. If things go well, the excavators will arrive in the second half of 2023.
>> Read also: The US is subsidizing itself to be the world leader when it comes to chips
The state will probably have to provide more money overall than planned. Because the prices for the chip machines and the construction costs have risen significantly in the past few months. The chip manufacturers, however, constantly demand around 40 percent of the investment sum as a subsidy, be it in the form of tax breaks or direct payments.
Animation of Intel’s planned semiconductor plant in Magdeburg: It is unclear when the construction work will begin, the funding has not been approved.
(Photo: dpa)
In addition, it is becoming more difficult to persuade companies to invest in Europe because the location conditions have deteriorated in recent months. Electricity prices in particular have risen much more sharply in Germany than elsewhere, and are about three times as high here as in the USA. Electricity is a major cost factor for semiconductor companies. The plant of the US company Texas Instruments in Freising, Bavaria, for example, uses as much electricity as the entire district town with its almost 50,000 inhabitants.
ZVEI President complains about “regulatory frenzy”
The state isn’t exactly rolling out the red carpet for companies either, criticizes ZVEI President Kegel: “The regulatory frenzy in Europe is getting worse and worse.”
Medium-sized companies like TQ would be helped if, for example, they got more so-called microcontrollers – mini-computers for special tasks that are used in medical technology, but also in robots. Today, most of these components come from contract manufacturers in the Far East, including China. They are coveted and scarce. The deteriorating political relations with the People’s Republic and Beijing’s erratic Covid policy are further reasons why the German government and the EU are pushing for their own chip supply.
TSMC: The contract manufacturer is shy
Despite the need to build up your own production capacities in Europe, experts advise against wanting to do everything yourself. The semiconductor factories are simply too expensive for that. The most modern works cost around ten billion dollars. “Duplicate structures would be expensive and would lead to less progress or more expensive products for consumers,” warns BCG expert Mohr.
ZVEI President Kegel wants to strengthen production in Europe in order to become less dependent on producers overseas. But that doesn’t mean breaking up existing supply chains: “In the future, too, chips will be produced in global value-added networks based on the division of labour.” Many semiconductors in Malaysia, Indonesia and the Philippines are tested and packaged because this is labor-intensive and correspondingly expensive.
The example of TSMC shows how difficult it is to attract chip companies from overseas. The world’s largest contract manufacturer has been considering settling in Germany for more than a year. It would be the Taiwanese’s first plant in Europe. The listed company has not yet made a decision. One thing is certain: It would be a blessing for industry in this country if production moved closer.
>> Read also: Electronics from Germany are in demand again – but only in niches
Because regardless of the recession, inflation and the Ukraine war: The order books of many chip manufacturers are full and demand is high. Customers need a lot of patience. “The delivery times for individual product groups are still critical,” says Thomas Rudel, boss and owner of Rutronik, Europe’s largest distributor of electronic components. The entrepreneur from near Pforzheim sells 120 billion components every year.
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