Linnea Ahlgren is a senior editor with TNW; Ioanna Lykiardopoulou a writer with TNW.

When planning for a race, it is a good idea to set out a few different goals. If you’re running a marathon, maybe Goal A is to finish in less than three hours. However, if the gun goes off and you realise it’s not your day — perhaps you miscalculated your food intake or it’s pouring down — you adjust to Goal B: 3 hours 10 minutes. Failing that, Goal C might be to simply cross the finish line. 

The Goal A of the EU is to produce 20% of the world’s semiconductors by 2030. It currently makes about 10%, so is this goal even remotely realistic or will the bloc need to adjust its expectations? 

The EU already houses high-profile companies in the semiconductor value chain. They include integrated device manufacturers and automotive chip leaders Infineon, NXP and STMicroelectronics; as well as ASML, which manufactures the world’s most advanced chip-making machines. They have recently been joined by several start-ups for more specialised microchips, such as Black Semiconductor and Axelera AI. 

The European Chips Act seeks to leverage the bloc’s research and development capabilities and make it more competitive in advanced chips for technologies such as artificial intelligence (AI), quantum computing and 6G, as well as boost supply capabilities for industrial and automotive chips.

It sets aside €11.15bn for the development of a cloud-based microchip design platform to be made available across the EU, as well as pilot lines for process development and small-scale production. Furthermore, it aims to increase the number of domestic fabrication plants (fabs) and stimulate more than €43bn in private and public investments. 

Spurred on by incentives mobilised by the Act, such as favourable regulation and state aid, tech giants from outside the bloc such as Intel and TSMC are pouring billions of dollars into the continent. The two companies’ commitment to Germany, where TSMC is building a €10bn fab in Dresden and Intel a €30bn mega fab in Magdeburg, is a crucial component for the EU to hit its target. But not all chips are created equal. 

TSMC currently produces the world’s most advanced chips in Taiwan, used to power everything from AI to fighter jets. However, its first European factory, a collaboration with Bosch, Infineon and NXP, will mainly focus on automotive microcontrollers. 

With a shift towards electric vehicles driving increasing demand, consultancy BCG expects the market of automotive semiconductors to grow by 9% annually through 2030. TSMC’s German fab is expected to have a monthly capacity of 40,000 wafers, each of which can hold hundreds of chips, when it begins production in 2027. 

Intel’s mega fab in Magdeburg will, according to its CEO, be not only the most advanced in Europe, but among the most advanced in the world. Intel says ‘Silicon Junction’ will produce chips of a type aimed at high performance computers and AI, as well as network functions and telecoms, for the company as well as its foundry service customers when it comes online late 2027. 

However, the company has struggled to capitalise on later technologies as it has been overtaken by competitors. In order for the EU to profit significantly from the new fab, Intel must first regain its cutting-edge momentum. 

Ultimately, the EU will need to compete against established actors who are also scaling capabilities, while also rushing to catch up in more advanced technologies. China is investing heavily into automotive and industrial chips, the US into advanced logic chips. Besides, the fabs announced around the continent in recent months will have to clear major bottlenecks to live up to expectations — from talent recruitment to locking in water and energy supplies. Additionally, geopolitical circumstances may prove out of the bloc’s control.

The starting gun went off and the race started. But the EU may well have different goals should things not pan out as expected. It may need to downgrade expectations to some degree of self-sufficiency across the board, or, barring that, secure only the most critical supply in the potential future event of ‘reunification’ in the South China Sea.

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This article first appeared in the August/September 2024 print edition of fDi Intelligence.