What is the European Chips Act?
The European Chips Act is a roadmap for the semiconductor industry published in 2022 and coordinated by the European Commission, the Member States and the industry. Its objective is to reduce the dependence of the European Union on Asia in this sector: it has a quantified objective of increasing Europe’s market share for chips manufacturing from 10% to 20% by 2030. The European Chips Act proposes a set of measures aimed at strengthening the European semiconductor ecosystem, based on three complementary pillars. Pillar 2 aims to secure supply capacity and strengthen resilience by attracting investments in Europe in component manufacturing plants, design capacities, wafer factories or production equipment.
Why has Europe lost ground in microelectronics?
The capital expenditures of gigafactories in the microelectronics sector are exceptionally high for the most advanced components, in the order of ten billion euros. These are investments that only a limited number of players can afford. Over the past two decades, we have therefore witnessed increasing specialization in the sector: fabless companies have chosen to abandon the manufacturing of components to focus on chip design. At the same time, certain companies have specialized in the manufacturing of components, which they produce on behalf of third parties such as fabless: these are foundries. Finally, certain players have made the strategic choice to maintain an integrated device manufacturer (IDM) model: they design and manufacture their own chips.
These underlying trends have contributed to Europe experiencing a decline in manufacturing capacity in the microelectronics sector for two decades: its global market share has continued to drop since the early 2000s, and it has fallen under the 10% mark since 2016. However, the massive public investment mobilised by several Asian countries to develop their semiconductor industries (China, Korea, Japan, Singapore, Taiwan), leading to a global subsidy race, also weighs heavily. This public support strengthens the attractiveness of investments in Asia, to the detriment of Europe. The European Chips Act is expected to mobilize more than €43 billion in public and private investment until 2030 to reverse this trend.
How does Pillar 2 of the European Chips Act work?
Pillar 2 of the European Chips Act constitutes the core of Europe’s response. It offers a unique opportunity to finance microelectronics factories with State aid. To be funded, these factories must demonstrate that they are the first of their kind in Europe, whether as “Integrated Production Facilities” (based on the IDM model) or “Open European Foundries”. A facility of comparable capacity must not yet be present or under construction in the EU. A new factory can differentiate itself from existing factories on the basis of criteria such as its position in the value chain, product and/or process innovation, technological node, energy and environmental performance, substrate (Si, GaN , SiC) or capacity.
How is Chips Act project funding calculated?
The amount of aid is determined by the project’s funding gap, which can refer to the alternative project that would be carried out outside Europe by the beneficiary in the absence of European Chips Act funding – the counterfactual project. The principle of this financing rule is to stimulate manufacturing investments in Europe which would not take place at all without State aid, or which would take place outside Europe. The aid may cover both Capex and Opex. The process starts with an application at national level, followed by notification to the European Commission for selected projects. At this stage, the aim is to obtain the “first factory of its kind” label as well as the regulatory green light under competition rules.
How does european economics support its clients in the European Chips Act?
european economics has positioned itself as early as 2022 to be able to offer support to its clients in the microelectronics sector wishing to finance their factory projects under Pillar 2 of the European Chips Act. We are already supporting four projects representing over 22 billion euros of investment and more than 8 billion euros in State aid. european economics has expertise across the entire process to support its clients from the blank page to the green light from the European Commission.
