The EU’s strategy to secure its own supply of microchips is “deeply disconnected from reality”, a damning report by the official European court of auditors (ECA) has found.
The ECA reported that the bloc was “very unlikely” to meet its 2030 target of supplying 20% of the world’s microchips at a time when global demand for semiconductors is booming to meet the growing needs of defence, green tech and artificial intelligence.
With Donald Trump threatening to impose tariffs on chips imported to the US, there is also potential for “collapse of supply chains”, the ECA said, making the EU more vulnerable, despite tech multinationals such as California’s Intel and South Korea’s Samsung having bases in Europe.
“The EU urgently needs a reality check in its strategy for the microchips sector,” said Annemie Turtelboom, who was in charge of the ECA audit.
A European Commission paper in 2022 set out the bloc’s ambition to take a 20% share of the chip market, a share reflecting the percentage of global end users located in Europe.
However, the ECA’s report found that target was “essentially aspirational” and investment goals were hindered by the bloc’s “financial muscle” being too fragmented across different schemes and tax regimes.
“We are making promises that are deeply disconnected from reality,” Turtelboom told reporters at the launch of the report.
“We are competing in a global race, but from the back of the field, and it is unclear whether we have the means to be successful in this race [or the] competencies to support the industry, and the funding we have available is fragmented and scattered.”
Microchip shortages can cause huge problems for industry. The report noted that in the pandemic’s wake, a lack of microchips for German carmakers caused production to collapse to 1975 levels.
“They are present in everything, and are becoming only more so with time,” Turtelboom said. “In a modern car, there are about 1,500 microchips. By 2030, this number is expected to rise to 3,000.”
Brussels announced a Chips Act in 2022 to reduce the EU’s reliance on foreign states for supplies of critical components. The resulting regulation came into force in 2023.
“Is it worrying? We know that other continents, China, the US, Taiwan and South Korea, they are not sitting still,” Turtelboom added.
China is expected to overtake Taiwan as the world’s biggest manufacturer of chips in 2030 with 22% of the market, according to the ECA. The EU is forecast to manufacture just 8% on its own soil by then, and would have to quadruple its production capacity to meet a 20% target.
The ECA found that the Chips Act did provide “new impetus” to manufacturing, and that the funding provided by the European Commission was aligned to the bloc’s strategy.
However, it said that the act was “prepared in urgency” and the Commission had no mandate to coordinate national investments and all funding streams. It added that tax breaks needed to be closely monitored with a view to increasing investment.
The EU’s ambition when the Chips Act came into force was to mobilise €86bn (£73bn) in investment by 2030, but this is eclipsed by the sums being spent by the likes of Taiwan Semiconductor Manufacturing Company (TSMC), Samsung and Intel.
These top players budgeted $425bn (£361bn) for investment in just three years between 2020 and 2023 and only one, TSMC, had significant plans to invest in the EU.
Intel, which already has manufacturing facilities in Ireland, had planned to pour €30bn into a mega plant in Magdeburg, Germany, with backing of almost €10bn from the German government, but postponed construction last September.
The postponement was a big blow to the EU that highlighted the effects of the sector being concentrated in so few hands.
“There are a limited amount of players who receive a lot of funding, which means if one project drops, it has a huge impact on the 20% targets,” Turtleboom said.
A European Commission spokesperson said the Chips Act had catalysed funding of €80bn and “laid a strong foundation in consolidating Europe’s position in the global semiconductor market after two decades of decline, and put Europe back on the path of growth”.
