In September 2023, the EU Chips Act came into force. The Act aims to address a range of supply chain and strategic issues that have emerged since 2020 by building a sustainable semiconductor industry in Europe that can provide European industry, consumers and defence with chips sourced within the continent. Many of the chips that Europe sources at present are for embedded systems in industrial, critical infrastructure, medical electronics and consumer devices. The largest single consumer of chips in European industry is the automotive sector.

The EU Chips Act aims to increase the continent’s global market share in chips from 10% to 20% by 2030. The EU aims to achieve leadership in next-generation chips at 2 nanometres and below. The Act earmarks €11 billion investment in research and development through the EU Chips Joint Undertaking. Germany is investing €5 billion in state aid to support the ESMC fab in Dresden, a joint-venture with Taiwanese chip giant TSMC. The Dresden investment is the largest sum allocated under the EU Chips Act to date.

The Act comprises three main pillars: the Chips for Europe Initiative; the Security of Supply and Resilience pillar; and the Monitoring and Crisis Response pillar.

The Chips for Europe Initiative pillar focuses on research and development. It includes developing testing and experimentation facilities for semiconductor technologies; and building capacity in technology and engineering. This latter includes the aim to create quantum chips and related advanced semiconductor technologies.

The first pillar also includes establishing a network of Competence Centres by creating new facilities or improving existing ones. It also improves access to debt financing and equity, particularly for start-ups, SMEs, and small mid-caps throughout the semiconductor value chain. The Act enables a blending facility under the InvestEU Fund and the European Innovation Council, which is known as the Chips Fund.

The second pillar, Security of Supply and Resilience, aims to make the EU a more attractive location for semiconductor manufacturing. The Act aims to simplify the process of establishing production facilities by granting special status to what the Act describes as “Integrated Production Facilities” (IPFs), and “Open EU Foundries” (OEFs). These special status facilities have easier access to permits and fast-tracked procedures, which aim to make it more appealing for companies to invest in semiconductor production within the EU. To qualify, facilities must be “first-of-a-kind” in the EU. This means facilities should include novel technology nodes, substrate materials, or other innovations that enhance chip performance.

The third pillar, Monitoring and Crisis Response, aims to prevent or manage potential disruptions to the semiconductor supply chain. The act sets up mechanisms for monitoring the supply chain, issuing early warnings of potential shortages, coordinating procurement, and, if needed, mandating a shift in production towards chip types experiencing shortages. The EU can implement emergency measures that include: requiring IPFs and OEFs to accept and prioritise the production of crisis-relevant products for critical sectors; and requiring other semiconductor undertakings to prioritise crisis-relevant products if they have agreed to do so in connection with receiving public support.

To date, key investments and developments under the EU Chips Act have included: the ESMC Dresden Fab; Intel’s planned Magdeburg facility; expansion of STMicroelectronics in France and Sicily; a GlobalFoundries fab in France and expansion of an existing facility in Dresden; Wolfspeed planning a new fab in Germany; Infinion planning a new fab in Dresden and a new STMicroelectronics plant in Catania.

The European Semiconductor Manufacturing Company (ESMC) is a joint venture with Taiwan Semiconductor Manufacturing Company (TSMC), which holds a 70% stake in ESMC. ESMC has begun construction of a fab in Dresden, Germany, which represents an investment of €11 billion. The European Commission approved €5 billion in German state aid, marking the most significant sum under the EU Chips Act so far. The fab is projected to be fully operational by 2029 and will produce 480,000 silicon wafers per year, focusing on chips for automotive and industrial applications.

Intel has allocated €30 billion to planned chip facilities at Magdeburg. The company plans to construct two advanced chip plants in Magdeburg, with the German government pledging nearly €10 billion in subsidies. Despite recent budgetary problems within the state and Intel’s internal cost-cutting measures, both the regional government of Saxony-Anhalt and Intel CEO Pat Gelsinger have confirmed commitment to the project.

STMicroelectronics has announced a new chip plant in France, built in collaboration with GlobalFoundries, which has received approval from the European Commission for €2.9 billion in French state aid; a new factory in Sicily, which has gained approval for €2 billion in Italian state aid, and a further plant for silicon carbide semiconductor substrate manufacturing in Catania.

The EU Chips Act can be compared to the US Chips Act. However, there are differences between the two Acts.

The EU Chips Act faces stricter regulations on government subsidies (“state aids”) than the US Chips Act. EU member states must obtain approval from EU competition authorities for any subsidies granted under the Chips Act, ensuring alignment with exceptions like promoting innovation or regional development. The US Chips Act does not impose federal limitations on “state aids” or require prior approval for subsidies provided by individual states.

The US Chips Act allocates “new money,” representing fresh federal funding appropriated by Congress. In contrast, the EU Chips Act largely relies on redirecting funds from pre-existing EU programmes. Although new funds might be available within specific member states, this reallocation of existing EU resources has sparked debate regarding potential trade-offs between strategic priorities.

There is also a difference between the two Acts in tax incentives. The US Chips Act offers federal tax credits of up to 25% for investments in chip-making facilities initiated by the end of 2026. The EU Chips Act, however, lacks comparable tax incentive provisions.

The implementation frameworks of the two Acts also differ. The US Chips Act follows a simpler implementation structure, involving bilateral grant agreements between the Department of Commerce and industry recipients. The EU Chips Act involves multiple layers and stakeholders. Companies seeking funding must first secure commitments from member state governments, which are then subject to approval by the European Commission in accordance with EU competition rules. This multi-layered approach adds complexity to the implementation process for EU projects.

The EU Chips Act removes some environmental requirements to streamline the permitting process for “first-of-a-kind” chip facilities, accelerating project timelines. The US Chips Act does not contain similar provisions, exposing US projects to longer regulatory processes.