EU's Chips Act pushes for innovative semiconductor plants and security of supply

The EU is gearing up to put what may be billions of euros in state aid towards semiconductor production sites.

One of the goals of the EU’s coming Chips Act is to attract investment for the projects, so-called “mega fabs”.

To win funding, they must be first-of-a-kind in Europe, ensure the security of supply and commit to future investment, Thierry Breton, the EU’s internal markets commissioner, said.

The EU will publish its proposal on February 8.

Mr Breton would not say how much money the EU will have to back its plan, which involves mega fabs and ideas to support research. But he said the Chips Act’s budget is commensurate with a US proposal to put $52 billion into the industry.

The state aid will not be a handout. Mr Breton would not elaborate on the measures beyond saying the legislation will include “tools” to secure supply in times of crisis, a measure "inspired" by the US’s Defence Production Act.

Sources familiar with the EU’s proposals said that in times of emergency, the EU could demand that a company prioritises the production of high-demand items regardless of whether this would cause complications in supplying other orders.

Brussels is also considering legally requiring companies to respond to requests for information about stocks, delivery schedules and production capacity if they receive public money, the sources said.

The EU could also decide on an export control regime and is considering fining companies for providing incorrect information or failing to comply with its supply demands, the sources said.

These proposals could change after discussions with other commission members this week.

Mr Breton said that the investment will reduce the EU’s dependence on the US and Asia for semiconductors, a move that could better position the bloc in a battle for supplies of chips that are used in everything from cars to hairdryers to smartphones.

“If we can bring them something in innovation, in price, in speed, you are in a better position to monitor your dependencies in today’s world,” Mr Breton said. “That’s the new geopolitics of supply chains.”

Negotiations could be difficult, as EU money for the Chips Act is likely to have been allocated to other projects, and much of it will come from EU countries’ coronavirus recovery plans, officials said.

The EU is trying to become a bigger player in the global semiconductor industry, last year setting a target to supply 20 per cent of the world’s chips by 2030.

With demand increasing, European Commission President Ursula von der Leyen said last week that production in the EU will need to quadruple.