The European Chips Act is a roadmap for the semiconductor industry published in 2022 and coordinated by the European Commission, 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 from 10% to 20% in 2030 Europe’s market share for chips manufacturing. The European Chips Act proposes a set of measures which aims to strengthen 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.
The capital expenditures of gigafactories in the microelectronics sector reach huge amounts for the most advanced components, in the order of ten billion euros. These are investments that few players can afford. Over the past two decades, we have therefore witnessed increasing specialization in the sector: so-called fabless companies have chosen to abandon the manufacturing of components to concentrate on their 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 model (IDM): 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 beginning of the 2000s, and it has fallen under the 10% mark since 2016. But the gigantic financial resources put on the table 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 turn the tide.
The 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” (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.
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 can finance Capex and/or 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.
european economics has positioned itself as soon 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 which represent more than 22 billion euros of investment and State aid of more than 8 billion euros. european economics masters the entire process to support its clients from the blank page to the green light from the European Commission.