The corresponding law, the “EU Chips Act”, is currently being voted on by the commissioners. It is due to be presented on February 8th. At the same time, the eagerly awaited decision might also be made as to which European locations the US chip manufacturer Intel will build new systems at.
The EU Chips Act is a decisive turning point in European economic policy: a geopolitical awakening and the end of government aid restraint. The Commission wants to mobilize more than 30 billion euros, partly from its own budget and partly from the budgets of the member states. “This is an important initiative for our companies, our economies and our geostrategic interests,” said EU Internal Market Commissioner Thierry Breton in an interview with the Handelsblatt and other business media.
The EU Chips Act is a major project that will affect all stages of microprocessor development and manufacture. On the one hand, a strengthening of research institutions is planned, as well as targeted aid for small, innovative companies, a revision of the previously restrictive European state aid rules and a set of instruments for “supply security in crisis situations”. The law thus goes well beyond the EU’s previous options for shaping industrial policy.
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In times of international tension, the EU can no longer rely on a “global division of labor” in which Europe leaves the “market of the future” to Asia, Breton emphasizes: “It is essential that Europe can count on a production capacity.” the continent’s “industrial might” off chips.
“Overconcentration” of chip factories in Asia
Chips have become key components for virtually all industrial products. They are in cars, dishwashers and mobile phones, are becoming smaller, more efficient and faster – but they mostly come from overseas. Of the technically most sophisticated chips, which are less than ten nanometers in size, half come from Taiwan and just under a fifth from South Korea. For classification: A nanometer corresponds to one millionth of a centimeter, which is regarding as much as a fingernail grows per second.
The EU internal market commissioner points to an “over-concentration” of chip factories in Asia and “particularly in Taiwan”, a geopolitical high-risk zone.
(Foto: imago images/PanoramiC)
Breton points to the “over-concentration” in Asia and “particularly in Taiwan”, a high-risk geopolitical zone. Should a conflict break out between China and Taiwan and cut off semiconductor supplies, “European factories would be without chips in just three to four weeks,” Breton warns.
In order to ensure the supply of European industry even in times of crisis, the Chips Act provides for regulations that might extend to temporary export restrictions for European chips. The Commission was “inspired” by the Defense Production Act, Breton explains, a 1950s law that gives the US government sweeping powers to intervene in corporate decisions to ensure the supply of critical goods.
Europe should become more resilient. Accordingly, the EU Commission wants to increase the European share of global chip production from ten to 20 percent. A highly ambitious project, as the industry association ZVEI emphasizes: just to maintain the current market share, the production capacities in Europe would have to double by the end of the decade.
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Breton is aware that catching up on Europe’s chip production deficit will require a lot of money. He does not want to give specific figures as long as the final votes are being taken in the commission. However, Breton makes it clear that the amount of funding will correspond to the magnitude that the Americans want to provide for the chip industry.
The US Chips Act, which is currently being discussed in Washington, provides for state aid equivalent to around 44 billion euros. However, the Commission points out that the Americans want to spend ten billion of that on building research centers that already exist in Europe. Therefore, the volume of European aid should amount to around 34 billion euros.
Europe cannot afford to be ‘naïve’
“With no chips, no digital transformation and no green transformation,” says Breton. The former top French manager nevertheless emphasizes that Europe does not want to decouple itself from the world market. The EU continues to rely on partnerships with other countries, but cannot afford to be “naive”.
It’s regarding “creating the right balance of power that we can use if necessary”. Europe must pay more attention to the “geopolitics of supply chains”. The pandemic has already shown this, in which an international power struggle raged over the supply of protective clothing and vaccines.
Exceptions under state aid law for the targeted promotion of strategic economic sectors were previously only possible if the Commission and member states identified Important Projects of Common European Interest, or IPCEI for short. There are two such projects in the field of microelectronics.
But an IPCEI has legal limitations, so the focus must be on innovation and research, Breton explains, not manufacturing. The Chips Act should enable a broader promotion of the semiconductor industry.
However, in order to prevent companies from grabbing subsidies without advancing Europe technologically, only innovative companies are to be promoted with the Chips Act. This point is also important for EU countries like the Netherlands, which are traditionally skeptical regarding industrial policy experiments. “There needs to be a clear business case, not just an interest in funding,” says a top Dutch official. The government in The Hague was initially skeptical regarding the Chips Act, but now supports the proposed law.
Chips are becoming more important in mechanical engineering and the automotive industry
Breton’s goal is that in a few years, chips with a size of less than five nanometers will also be produced in Europe. This is well received by the economy: the ZVEI industry association has been pushing for globally competitive funding for the chip industry in Europe for years. Compared to South Korea or Japan, the funds that companies in the EU might get from the state are small. Without public help, however, the race to catch up will not succeed, emphasizes ZVEI President Gunther Kegel.
ZVEI is committed to ensuring that the Chips Act promotes both factories for the latest generations of chips and more mature technologies that are important for the remaining European chip manufacturers. “We have to take care of both,” agrees ASML boss Peter Wennink. The chip machine manufacturer from the Netherlands is Europe’s most valuable technology group.
In the past 20 years, most chip factories have emerged in Asia. On the one hand, this was due to ample public funding. On the other hand, the manufacturers have followed their customers, explains Kegel. “Because we’ve largely lost PCs and entertainment electronics in Europe for a long time.”
However, chips are becoming increasingly important for mechanical engineering and the automotive industry. Therefore, the interest in a reliable supply of the components is increasing significantly. On average, a car contains semiconductors worth 750 dollars today, and in four years it will be more than 1000 dollars.
Recently, the major chip companies have opted for locations overseas. With the exception of Bosch, no company has built a new chip factory in Germany in the past 15 years. However, the Federal Republic can now also hope for an investment from Intel.
Breton has met with Intel boss Pet Gelsinger repeatedly over the past few months. Most recently, it became apparent that the US group would open new locations in Germany, Italy and France. Nothing has been signed yet. Intel recently announced plans to build two $20 billion plants in the United States.
The world’s largest contract manufacturer, TSMC from Taiwan, is also considering a factory in Europe. However, the potential commitment is “still at a very early stage of evaluation,” said Mark Liu, Chairman of the Board of Directors recently. First you have to understand the needs of the customers. TSMC is a world leader in technology.
But even if the EU funding is now flowing quickly: the current supply bottlenecks will not change. It takes regarding three years to build a new chip factory.
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