The €43 Billion EU Chips Act gets green light from European nations. What’s next?

In February this year, the European Commission proposed a comprehensive set of measures — the EU Chips Act — meant to strengthen the EU’s semiconductor ecosystem. It came after US policymakers tabled the CHIPS and Science Act for the same reason — to strengthen domestic semiconductor manufacturing, design and research. The US Congress eventually passed the bill in August this year — and now the EU seems to be heading in the same direction.

In a report by Reuters, the Czech Republic (next in line to hold the RU Presidency) said that EU envoys had unanimously backed an amended version of the European Commission’s proposed EU Chips Act. EU ministers will meet on December 1st to rubber stamp the chip plan, though it will still need to be debated in the European Parliament next year before it can become law.

The long term goal of the EU Chips Act is to essentially boost Europe’s share of global chip production capacity to 20% from its current level of around 10%. The Act is expected to be adopted in the first half of 2023, but has already had an impact on major semiconductor companies’ investment decisions. 

Till date, a number of companies have already announced new semiconductor manufacturing sites, including Intel Corp, GlobalFoundries Inc, STMicroelectronics NV and Infineon Technologies AG.

What does the amended EU Chips Act entail?

A key part of the EU Chips Act from the start is to provide financial support to set up factories for advanced chip production (“fabs”) and step up semiconductor research in the EU. The proposed deal has so far expanded the scope of what chip plants are considered “first-of-a-kind” and qualify for state aid. However, as Bloomberg puts it, the EU Chips Act stops short of allowing all automotive chips to qualify for funds, which some countries had demanded for earlier this month. 

Reuters also noted that changes agreed by the envoys to the Commission’s proposal included allowing state subsidies for a broader range of chips and not just the most advanced ones. “The subsidies will cover chips that bring innovation in computing power, energy efficiency, environmental gains and artificial intelligence,” it noted.

EU countries also sought to curb the powers of the Commission (the EU executive), saying its requests to companies for information during a crisis must be proportionate and security-focused, according to an EU document seen by Reuters. Then there are other contentious issues, such as the use of EU funds, a separate report by Bloomberg explained.

“Member states on Wednesday agreed not to reallocate €400 million of research funds for semiconductors after countries with small chip industries raised concerns that this money will only benefit big countries like Germany that have larger operations. Ambassadors want the Commission to find the money elsewhere,” the report stated.

When presenting the EU Chips Act earlier this year, European Commission President Ursula von der Leyen shared the legislation’s two main goals: the first, in the short term, is to increase resilience to future crises by anticipating and thus avoiding supply chain disruptions. And the second, looking at the mid-term, is to make Europe an industrial leader in a very strategic marketplace.

“For that, we have set ourselves goals. We have set ourselves the goal to have, in 2030, 20% of the global market share of chip production, here in Europe. Right now, we are at 9%, we want to go to 20% in 2030. But knowing that the demand in the global market will double during that time, it basically means quadrupling our efforts,” she added.

That said, the Act will enable €15 billion in additional public and private investment until 2030. That is on top of €30 billion in public investments that they have already planned for, for example at NextGenerationEU, at Horizon Europe, or in the national members’ separate budgets. Von der Leyen noted that these funds are to be matched by further long-term private investments.