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Semiconductors realpolitik : A reality check for Europe

  • European industrial autonomy in semiconductors is far out of reach. The recent shortage of semiconductors has highlighted one of Europe’s vulnerabilities, prompting the European Commission to set targets to bring the region’s share of global semiconductor production to 20% by 2030 and to ramp up chip production using the most advanced manufacturing technologies (5nm node and below). But we find that these targets are not only overly ambitious but also unnecessary. 
  • For Europe to jump from 7% to 20% of global chip output, it would need to invest far more than the entire industry. However, Chinese, Taiwanese and South Korean players are far outpacing European peers in this regard. Moreover, looking beyond the 2030 time frame, Europe would need to develop corresponding needs for semiconductors because proximity of production matters. Europe’s need for chips mostly comes from the automotive and industrial sectors, which together account for just about 20% of global chip sales. The region’s semiconductor bill has remained broadly unchanged over the past 15 years, while global demand for chips over the same period doubled. The absence of local demand also makes the objective of having local state-of-the-art chip-making capacities questionable.
  • Instead, Europe should play the long game, placing chips where they matter the most. Support could be focused where the needs are the most acute and proven, i.e. in manufacturing capacities serving the European automotive and industrial sectors. These industries will see growing demand within 10 years as cars and industrial goods go greener and more digital. Following the lead of the US, China, South Korea and Taiwan, Europe could stimulate investment in local manufacturing capacities through a mix of tax breaks and grants. To protect against future vulnerabilities, investment can be focused where competition seems comparatively more open and Europe’s future needs certain. A stronger ecosystem in critical future semiconductor technologies with a large number of application across European industries, including artificial intelligence and in a more distant future quantum computing, would most certainly reduce Europe’s future reliance on foreign components and technologies and translate into a naturally broader semiconductor manufacturing footprint.

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Aurelien Duthoit
Euler Hermes