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Behind shiny new semiconductor investments, the EU Chips Act needs more work

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While Single Market EU Commissioner Thierry Breton hailed chip manufacturers’ recent investment pledges in Europe as a ‘culmination’ of the EU’s industrial strategy and its newly-adopted Chips Act, a lot more work is needed before Europe can claim victory in securing strong semiconductor supply chains.

On Tuesday (8 August), Taiwanese semiconductor giant TSMC, alongside Bosch, Infineon and NXP, announced it will invest over EUR10 billion in Germany, to both build and operate a microchips plant.

In June, US Intel also unveiled a EUR30 billion investment plan in Germany in an effort to “create a first-of-its-kind, leading-edge end-to-end semiconductor manufacturing value chain”, according to the press release.

France also saw the very fresh start in June of a production plant for ‘wafers’ – a silicon slice designed to create electronic integrated circuits, used mostly in photovoltaics – run by STMicroelectronics and Globalfoundries, first announced in July 2022 and worth EUR7.5 billion.

The list of announcements marks the “culmination” of a sound EU semiconductor strategy, Breton told French broadcaster RTL on Thursday (10 August), after years of deindustrialisation.

“Europe is taking its destiny back into its own hands,” with a pledged total of 68 EU projects worth about EUR100 billion, Breton added, praising the recent adoption of the EU Chips Act, which aims to bridge the gap between research and development (R&D) and production and support the creation of ‘first-of-a-kind’ foundries that help secure European supplies.

The legislation was first introduced in February 2022 during a global semiconductor shortage that nearly completely halted the production process of many products with electronic components, from PlayStations to cars.

The EU had found itself exposed to a ‘strategic dependency’ over chips, which are mostly designed in the United States and produced in East Asia.

Good intentions

The recent investment announcements make the Chips Act objectives “concrete”, just weeks after the legislation was approved in late July, director of the semiconductor division at consultancy Yole Group Emilie Jolivet told EURACTIV.

The EU is looking to “reacquire production capacities to start playing in ‘the big league’ again”, she added. While announcements still need to translate into real production increases – TSMC’s investment comes with a EUR5 billion German subsidy, that the European Commission has yet to approve – she agrees with Breton that positive signs abound.

Mathieu Duch?tel, Head of International Studies and a China expert at French think-tank the Institut Montaigne, agreed announcements go in the right direction. However, he warned that the Act’s aim to double the current EU semiconductor global market share to 20% by 2030 “would require hundreds of billions of euros”, a far cry from the EUR43 billion the regulation intends on ‘mobilising’ through both EU public and private money – not counting state aid.

Duch?tel’s view was largely shared by Zach Meyers, a research fellow at the Centre for European Reform (CER). The doubling of current EU production to 20% relies on the “unrealistic assumption that global production everywhere else stood still […]. Announced chip-making investments in Europe do not come close to delivering these ambitions,” he told EURACTIV.

The EUR43 billion figure – rooted in a supposed leverage effect on private capital – does not quite meet the US Chips Act’s $280 billion (over EUR255 billion) public investment levels, Meyers highlighted. Meanwhile, South Korea’s new Chips law expects to see up to $430 billion (EUR392.6 billion) in private capital investments by 2030.

As for China, “policy-makers are alarmed at [its] willingness to spend vast sums to increase its own production of legacy chips – which could lead to a supply glut, putting the business case for investments in Europe at risk,” Meyers warned.

EU’s R&D lead

Semiconductors’ supply chains are inherently global – looking for full autonomy just doesn’t make sense, Jolivet explained. Repowering the EU’s industrial capacities would give it more sway on the international stage, in a market largely dominated by Taiwan, China and the US, as well as showcase the continent’s undisputed R&D lead, she said.

“TSMC, but also Intel and STMicroelectronics rely on European R&D” for its semiconductors, Jolivet told EURACTIV, describing the EU’s R&D capabilities as a success story 30 years in the making.

Chips R&D is the EU’s “comparative advantage”, Institut Montaigne’s Duch?tel said. The Leuven-based Interuniversity Microelectronics Centre (IMEC) is a leader in advanced research, whose work was “decisive” in STM’s new industrial processes, and TSMC’s new production of 2-nanometre semiconductors in Taiwan, Duch?tel highlighted.

Bringing production back is not about entering a technology race the EU is certain to lose against China or Taiwan, but instead producing chips that best fit the EU’s critical economic sectors. For example, TSMC’s newly-announced factory is due to create 14- to 28-nanometre chips – nowhere as small as state-of-the-art 2- or 3-nanometre ones, but the right size for the automobile sector, which Germany is a world leader in.

Intel’s intention to produce 5-to-7-nanometre chips in Germany – most often found in smartphones, data servers and supercomputers – is a riskier bet, Duch?tel points out, as large-scale production of such small-sized pieces of electronics has not yet been tested in Europe.

“Europe should focus on its strengths, which include imaging, advanced packaging, and power devices. Reinforcing these sectors requires both R&D and manufacturing,” Christopher Cytera, a non-resident senior fellow at the Centre for European Policy Analysis (CEPA), wrote in a EURACTIV op-ed in April.

“What Europe should NOT do is invest billions in building giant foundries to manufacture the world’s most miniaturised chips […]. Its subsidies are insufficient. Competition is fierce,” the piece reads.

Workers needed

“Breton is too quick to proclaim victory: announcing investments is one thing. But – as chip-makers have found in the US – securing the inputs and supply chains for these new factories is a struggle, in particular attracting a sufficiently skilled workforce,” Meyers cautioned.

This, according to all experts EURACTIV spoke to, is a key issue: finding workers with the relevant technical know-how and implementing relevant retraining programmes.

“Between the moment the EU Chips Act is adopted, and engineers are adequately trained, several years can pass,” said Yole Group’s Jolivet, who expects incoming sectoral “tensions”, as a time with labour shortages can be felt across the EU.

According to Duch?tel, the labour question “is the hottest issue industry is facing today”. Shortages are well-known, yet “public policies do not rise to the challenge”: while the Chips Act does address the issue through new ‘competence centres’, more must be done.

“The semiconductor sector suffers from a true attractiveness problem,” the researcher said.

Overall, the EU Chips Act is a badly needed piece of legislation and may help the continent “achieve a bit more self-sufficiency in one part of the supply chain,” according to Meyers.

But this does not stretch to agreeing with Breton’s “culmination” claim: “If the goal is to grow market share, the EU is still running to keep up”.

[Edited by J?nos Allenbach-Ammann / Nathalie Weatherald]

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