Europe requires increased domestic production of microchips, reports EU Court of Auditors.
The Unlikely Quest for EU's 20% Share in Global Microchip Market
Settin' the stage for a stiff competition, the EU's hopes of claiming a 20% share of the global microchip market by 2030, as per a recent report from the European Court of Auditors, seems like a long shot. Although the EU's 2022 chip act has given a much-needed boost to the European microchip industry, obstacles including insufficient investments, limited access to raw materials, high energy costs, and geopolitical tensions continue to trip up the sector, the report points out.
Microchips: Tiny Components with Massive Influence
Microchips are small yet potent electronic components utilized in a variety of electronic devices, serving as an essential cog in our daily lives. During the COVID-19 pandemic, the global chip shortage underscored their importance to the economy, according to the ERH report. In its strategy for the digital decade, the EU Commission aimed to reduce dependence on other producers by setting a goal for the EU to possess a 20% value share of the global production of advanced and sustainable microchips by 2030.
EU Court of Auditors: A Dose of Reality
"There's no life without microchips—they're everywhere," said Annemie Turtelboom, responsible for the report, at the press conference for the report. Turtelboom called for a dose of reality, as she expressed concerns about the EU being left behind in the race: "We're competing in a global race, and we're at the back of the pack." With the development in the sector happening at a breakneck pace and rivals like the USA or China accelerating their production, Turtelboom warns against complacency.
Global tariffs and export bans could also impair semiconductor production and availability. As Turtelboom says, "One of the reasons we've got the Chip Act is to be less dependent on other continents." If Europe wants to become more independent, the current prognosis of only 11% success might seem more concerning. The effects of the tariffs threatened by former US President Donald Trump are not yet considered in this report.
Austria: Jumping on the EU Funds Bandwagon
Austria wasn't one of the three EU countries specifically scrutinized for this report. However, Austrian partners were involved in some of the projects examined in a sample. Microchip companies in Austria leverage the EU's framework to encourage further investments, according to the ERH. Austria is also a partner in the EU's joint undertaking for chips in Brussels, supporting the development of the next generation of cutting-edge semiconductor technologies.
Europe's Asterisk: Falling Short on Investments
The EU Commission allots only 5% (4.5 billion euros) of the funds planned in the chip act by 2030, amounting to a staggering 86 billion euros in total. That means the rest must come from the EU countries and the industry. In contrast, world-leading chip manufacturers have invested an impressive 405 billion euros in the span of just three years (2020-2023). The EU Commission lacks the mandate to coordinate national investments at the EU level, the report criticizes further. Moreover, the chip act lacks clarity in its target specifications and monitoring.
The Auditors' Call for Reshaping EU's Digital Future
Given the challenges, the auditors recommend that the EU Commission undergo a reality check and implement necessary corrective measures and conduct a comprehensive review of the goals and potential hurdles of the Chip Act. Additionally, the next semiconductor strategy should be developed in close collaboration with the member states and the industry.
Various factors impact the EU's competitiveness in this area and the odds of successfully implementing the Chip Act, including dependence on raw material imports, high energy costs, geopolitical tensions, and a shortage of skilled labor. The microchip industry in the EU comprises a few large companies, which concentrates resources, leading to a high risk of failure or delay for a single project affecting the entire industry.
The main challenges are the ambitious nature of the 20% target given current resources and investments, high energy costs and environmental concerns, raw material dependencies, insufficient private investment and talent, cyclical market dynamics, and geopolitical hurdles. The ECA recommends the European Commission review the Chip Act’s goals and prepare a revised semiconductor strategy in cooperation with member states and industry stakeholders to address these issues.
- The EU Commission's goal for the EU to possess a 20% value share of the global production of advanced and sustainable microchips by 2030, as stated in its strategy for the digital decade, faces an uncertain prognosis due to obstacles such as insufficient investments and high energy costs.
- Annemie Turtelboom, responsible for the report from the European Court of Auditors, expressed concerns about the EU being left behind in the global microchip market race, stating that the EU is currently at the back of the pack.
- Austrian microchip companies are taking advantage of the EU's framework to encourage further investments, and Austria is also a partner in the EU's joint undertaking for chips in Brussels, supporting the development of the next generation of cutting-edge semiconductor technologies.
- The European Commission lacks the mandate to coordinate national investments at the EU level, according to the report, which criticizes the lack of clarity in the chip act's target specifications and monitoring.
- The auditors recommend that the EU Commission undergo a reality check and implement necessary corrective measures, conduct a comprehensive review of the goals and potential hurdles of the Chip Act, and develop the next semiconductor strategy in close collaboration with member states and industry stakeholders.
