European chip production: "Promises deeply disconnected from reality"

Contents

The EU Chips Act is unlikely to achieve its objective. The package of measures was actually intended to attract international chip contract manufacturers and motivate domestic manufacturers to expand. The declared goal: European chips should account for around 20 percent of global sales of semiconductors by 2030. Because capacity is also increasing in Asia and the US, this would require roughly a fourfold increase in Europe.

In an interim assessment, the EU Court of Auditors doubts that this will work. Because more new semiconductor plants are being built in Asia and the USA, the European share could fall even further. In its report, the Court of Auditors refers to figures from summer 2024, when Intel had not yet put its Magdeburg plants on hold indefinitely.

At that time, market researcher IDC (International Data Corporation) forecast a European share of sales of 11.7% for 2030 (EU report as PDF). At this time, the Semiconductor Industry Association (SIA) and the Boston Consulting Group (BCG) estimated the share of silicon wafer production at eight percent in 2030.

The investments are not enough

With the loss of the Intel plants, the European share will fall even further. Because the largest subsidies are concentrated on just a few companies, individual delays or cancellations have a significant impact on the 20 percent target.

The Intel plants were the largest European semiconductor project: the manufacturer actually wanted to build two semiconductor plants in Magdeburg with a total value of more than 30 billion euros. Due to economic problems, construction has been suspended. Whether it will ever begin is currently questionable.

The Court of Auditors is aware of a total of 29 potential or ongoing investments in production capacity. These include 13 projects for "novel facilities" – four approved and nine planned, including Intel. These 13 projects account for the lion's share of known investments: €26 billion is to come from state aid and €60 billion from the manufacturers themselves. Without the Intel plants, this means that more than a third of the investments might not be realized. One of the largest remaining projects is the European Semiconductor Manufacturing Company (ESMC) in Dresden for 10 billion euros, managed by the global market leader TSMC.

According to SIA and BCG, even including the previously planned Intel investments, things are looking bleak in Europe. The EU would see investments of 147 billion euros by 2032, while the total global value sits at 2.16 trillion euros.

Much more money would therefore have to flow to meet the 20 percent target. In a press conference, Annemie Turtelboom, member of the EU Court of Auditors, summarized that the promises of the EU Chips Act are "deeply disconnected from reality".

Procedural criticism

There is also formal criticism. For example, the EU Commission can hardly monitor the investments because most of the money comes from the member states. The EU Chips Act loosens the funding rules, allowing countries to pump much larger investments into individual companies. The EU Commission distributes around 4.5 billion euros, i.e., only around 10 percent of the funding.

The Commission approves funding applications, but has no subsequent monitoring mechanisms. In addition, it does not pursue further funding from other EU funds, including the European Structural and Investment Funds (ESI Funds), the European Fund for Strategic Investments (EFSI) and money from the Recovery and Resilience Facility (RRF) project. Investments by the European Investment Bank (EIB) also do not fall within the scope of the tracked EU funding.

An incidental criticism: the Court of Auditors also criticizes the fact that European manufacturers primarily have a need for older, but cheaper production technology. However, the EU Chips Act primarily promotes modern technology.

Positive developments

However, there are also positive developments to report. Projects to promote universities, start-ups and small to medium-sized companies are making good progress. These include a new European development platform for designing chips, including tools for electronic design automation (EDA). It is set to replace the 30-year-old Europractice platform. 400 million euros are being invested in this. Pilot plants for the production of test chips are to be built over the following years.

Another component of the new legislation is the possibility of having chips that are primarily needed in Europe produced in the plants in times of crisis. Several manufacturers are said to already have applied for approved labels for such emergencies. According to the Court of Auditors, crisis orders by the EU Commission will be possible from 2028. The measure is an explicit response to the chip shortage in times of the coronavirus pandemic.

The Court of Auditors recommends two measures in the near future. The EU Commission should carry out a reality check and adapt the EU Chips Act where necessary. This also includes systematic monitoring of cash flows and progress.

Based on this check, the EU Commission should, according to the Court of Auditors, develop a less hasty successor to the EU Chips Act. The latter was created in 2021/2022 at short notice in response to the coronavirus chip crisis, without incorporating all the findings of previous funding packages.

(mma)