The European Commission wants to mobilize 43 billion euros to stimulate its own chip industry. The lion’s share, approximately EUR 30 billion, is intended for the construction of new chip factories.
On Tuesday, European Commissioners Thierry Breton (Internal Market) and Margrethe Vestager (Competition) announced the details of their plan to make Europe less dependent on Asia and China. This is where the majority of global chip production takes place. The plan is a collection of new and older promises that will now be poured into legislation. The ambitions are great, but much is still unclear, especially about the financing.
The so-called European Chips Act is the most concrete example of a new form of industrial policy, in which Europe invests an unusual amount of public money for one sector. President of the European Commission Ursula von der Leyen spoke on Tuesday of a “game changer for the global competitiveness of the European internal market”.
Strategic importance
The persistent chip shortage has convinced Brussels that semiconductors are of strategic importance for the automotive industry and the technological and economic development of the EU. The risk of new chip shortages due to geopolitical tensions is high. Europe’s own share in chip production (about 8 percent) is far too small to cover that risk.
The budget for new chip factories will benefit production facilities that Europe does not yet have – these can be factories that make common, but also the most advanced chips. The start-up costs of such a factory are high: easily 15 to 20 billion for the most modern chips. But the manufacture of conventional chips – the chips that are currently in desperate need – is also expensive. Normally, those factories use slightly older equipment, but due to the chip shortage, it is hardly available or not available at all. Any major chip factory or foundry (where other companies can also have their chips made) in Europe must be built from scratch. Money is also earmarked for training the technical talents needed to run the factories and develop new technology.
The European plan does not ensure that the chip shortage will suddenly disappear – it will take years for new factories to be operational. But it should prevent chip shortages in the future. The aim is to double the EU’s market share to 20% by 2030.
Billion Dollar Budget
The multi-billion dollar budget is a combination of public and private investments – including those for already known plans. But because Brussels itself has little money in its ‘treasury’, financing remains the weak spot of the chips plan. Member States should in particular invest a lot in the development and production of chips. To this end, the European Commission wants to considerably relax the strict rules for state aid here, so that an unusually large amount of public money can go to this specific industry. But it remains to be seen to what extent EU governments pull out their wallets.
Some smaller EU countries, including the Netherlands, are traditionally reluctant to provide large amounts of state aid and fear unequal competition within the EU. And even if rules are becoming more flexible, not everything is possible: for example, the support must be ‘proportional’, support a project that could otherwise not be realized and do not hinder existing private initiatives.
Still, this plan is probably enough to make manufacturers like the American Intel or the Taiwanese TSMC decide to invest in Europe. Intel plans to build a 20 billion euro factory in Europe, requesting support for 40 percent of the start-up costs (8 billion). Under the new plan, Europe is prepared to pay ‘proven shortfalls’ in start-up costs. Germany, whose car industry is the largest buyer of chips, seems to be a contender for such an Intel location. The automotive industry is also the largest buyer of semiconductors in Europe.
The three market leaders in the chip industry, Intel, TSMC and the Korean Samsung, have already announced that they will build tens of billions of factories in the US. They are thus anticipating American stimulus plans. The EU could no longer be left behind with a concrete plan, otherwise Europe would be caught off guard.
Export Control
In addition to money, the plan presented on Tuesday also contains a new instrument that should increase the security of supply of chips within Europe. In the proposal, the Commission refers directly to the US Defense Production Act, which allows the US government to requisition certain goods or restrict exports in emergency situations. According to Brussels, Europe must also be given more tools to act quickly if shortages threaten. Ultimately, restrictions on exports should also be on the table, according to the Commission.
Whether it will come to that is uncertain. Not all Member States are equally enthusiastic about such firm industrial measures, which amount to far-reaching government interference with free trade. that also applies to the Netherlands. EU governments fear a domino effect, in which more and more countries will shield their own industry. “We run a great risk of shooting ourselves in the foot with this,” says a critical EU diplomat.
Research
The European Commission is allocating 11 billion euros for research and development of European chip technology. 5.5 billion of this comes from the European Commission, the other half from the Member States. In addition, a European chips fund of 5 billion euros will be added to the European investment bank.
For the European chip plan, the EU enlisted the help of, among others, the Dutch ASML, which supplies chip technology to all chip companies. ASML, at the request of the European Commission, wrote a position paper on the future of the European chip industry. At the beginning of January, the Commission also consulted with more than ten other European chip companies.