ECA Report: EU loses global semiconductor race

The European Union appears to have overestimated its chances of becoming a major player in the global microchip industry, according to a report published yesterday by the European Court of Auditors (ECA), which claims that the community bloc will not hold 20% of the global microchip market by 2030, a target assumed in 2022 but considered unrealistic by European auditors.

Microchips are essential for the modern economy, and the COVID-19 pandemic has shown how vulnerable global supply chains can be to such crises. It is precisely out of this need to secure production and reduce external dependence that the European Union launched the strategy for the digital decade, setting as its target a significant share of the world's production of state-of-the-art and sustainable chips. However, three years after the legislation was adopted, the European Court of Auditors' report raises a warning: the gap between declared ambitions and reality on the ground remains considerable.

"The EU urgently needs to inject a dose of realism into its strategy for the microchip sector," said Annemie Turtelboom, the Member of the Court responsible for the audit. She stressed that, in a highly dynamic and competitive sector, where global players are moving fast and investing heavily, Europe risks losing ground to the big tech powers. "The 20% target was actually a beautiful dream. To make it a reality, production capacity would have to increase by about four times by 2030. At the current pace, we are not even close," added Turtelboom.

Another issue highlighted by the ECA report is the uneven distribution of the financial resources needed to achieve the targets. Of the euro86 billion estimated for the implementation of the Chip Act by 2030, the European Commission is managing only 5% (euro4.5 billion), leaving the rest to member states and the private sector. By comparison, global industry giants have announced investments of euro405 billion for the period 2020-2023 alone, which puts into perspective the scale of the effort needed to make Europe competitive.

In addition, the Commission does not have a clear mandate to coordinate national investments so that they are aligned with the Act's objectives, the ECA auditors say. The report also criticises the lack of sufficient clarity on concrete objectives and monitoring mechanisms, noting that the current demand for standard microchips was not properly analysed in the development of the strategy.

The document argues that the EU's competitiveness problems in this area are exacerbated by a number of structural factors. These include dependence on critical raw materials, high energy costs, environmental pressures, geopolitical tensions, export restrictions and a shortage of skilled personnel. In addition to these challenges, the European microchip market is dominated by a few large companies focused on large-scale projects. Any postponement, failure or cancellation of such a project could have major negative effects on the entire sector, the ECA report shows.

The European Commission's forecasts from summer 2024 are also cautious: despite an anticipated increase in production capacity, the EU's share of the global value chain is expected to increase only modestly, from 9.8% in 2022 to 11.7% by 2030 - far from the ambitious target of 20%.

The Chip Act was introduced in February 2022, in the context of severe disruptions in global supply chains caused by the COVID-19 pandemic, and entered into force in September 2023. But the haste with which the document was drafted, in the absence of a rigorous impact assessment or in-depth analysis of previous strategies, contributes to the current vulnerabilities of the European plan.

By September 2026, the European Commission must present the first interim evaluation and review of the Chip Act to the European Parliament and the Council. These steps will be essential to decide whether the current strategy has a real chance of success or whether a profound recalibration is needed.