European Union to fund €45 billion for local semiconductor production

Following the example of the US, the European Union will heavily subsidise companies interested in developing semiconductor factories in the EU to reduce dependence on foreign suppliers.

In the wake of the COVID pandemic, the global semiconductor crisis has shown the big players in the automotive industry (and beyond) that ultra-sophisticated microprocessors, such as smartphone chipsets, are only a small part of the long list of semiconductors that are essential for a functional product. That’s why cars priced in the tens of thousands of euros each have been stuck on the assembly line for lack of microprocessors that would have cost pennies in the “good old days”. Now the situation is being repeated in Russia, with local car makers (e.g. Lada) resorting to extreme measures such as delivering cars without essential features like ABS, airbags or on-board computers.

Although costly, moving away from the globalization strategy by outsourcing semiconductor suppliers to any region of the world that offers more attractive rates could prove to be a winner in the long run. For example, China’s warlike ambitions towards Taiwan could leave the rest of the world without its most important source of high-tech microprocessors, with manufacturer TSMC already in a race against time to erect new factories to serve major customers. But the motivation is more on the receiving end, with costs prohibitive even for a giant of TSMC’s stature, and the eventual payback will take many years.

The plan agreed by all 27 EU countries will receive its final vote on 1 December. If it succeeds, the initiative could increase the market share of European semiconductor manufacturers from the current 8% to 20% around 2030. Interestingly, Europe’s role as a global semiconductor supplier was even higher in the past, reaching 24% around 2000. But the much more attractive prices offered by suppliers in the Asian region have gradually put most local manufacturers out of business, without anyone noticing the danger this dependence could pose later on.