EU: Chips Act 2

 

The EU’s competitiveness is increasingly dependent on semiconductors. The first Chips Act successfully attracted major manufacturing investments and helped bridge the gap between research and industrial production. However, significant challenges remain, particularly in advanced manufacturing and AI chips. Further action is needed to strengthen the EU’s position across the full semiconductor value chain, including materials, equipment, design, and manufacturing.

The European Chips Act, proposed in February 2022, marked the EU’s first strategic response to vulnerabilities in the global semiconductor value chain exposed by the COVID-19 pandemic and intensifying subsidy-driven competition from third countries. The EU recognised that coordinated and decisive intervention was necessary to address structural dependencies in its semiconductor ecosystem and support industrial resilience. Without substantial investment in research, manufacturing capacity, and crisis-response mechanisms, Europe would remain highly vulnerable to external disruptions.

The Chips Act was introduced at a time of growing focus on the green and digital transitions, alongside increasing recognition of the need to strengthen Europe’s competitiveness and reverse industrial decline. These concerns were later reinforced by the 2024 Draghi report, which highlighted the urgent need for industrial renewal.

The evaluation of the European Chips Act demonstrates significant progress. Key achievements include:

• the establishment of critical infrastructure, including competence centres, an emerging design platform, and five state-of-the-art pilot lines representing some of the world’s most advanced semiconductor technology infrastructure;
• more than EUR 52 billion in public and private investment committed to ongoing production facilities under Pillar II; and
• the creation of a coordination and crisis-response mechanism under Pillar III through the European Semiconductor Board (ESB), bringing together all Member States and the Commission.

Despite this progress, and despite the EU’s strengths in important areas such as mainstream semiconductor production (including power electronics, microcontrollers, photonics, and sensors), manufacturing equipment, and materials, major capability gaps persist. The EU currently produces less than 10% of global semiconductors and remains heavily dependent on the United States and Asia for leading-edge chips below 5 nanometres, including AI chips.

These structural dependencies increase the risk of supply disruptions, coercive pressure, and systemic shocks affecting critical industries such as automotive, energy, aerospace, and defence. Semiconductors therefore exemplify the urgency of Europe’s technological sovereignty challenge.

Technological sovereignty has become a strategic priority for the EU. The objective is to preserve Europe’s ability to shape its own technological future, reduce excessive dependencies, and ensure that critical digital infrastructure and technologies remain secure, resilient, and aligned with European values. In this context, the Chips Act 2.0 will form part of the broader Technological Sovereignty Package, alongside initiatives such as the Cloud and AI Development Act (CADA).

Europe’s approach to technological sovereignty remains rooted in openness, partnership, and fair competition. Strengthening the EU’s technological base is intended not to limit openness, but to ensure that Europe can remain collaborative while preserving its ability to act independently and protect its interests, security, and democratic values.

Against this backdrop, the revision of the Chips Act seeks to address two core challenges:
(a) excessive dependence on third countries for semiconductor design and manufacturing; and
(b) insufficient crisis preparedness and response capabilities.

Building on the original Chips Act and informed by these challenges, two overarching objectives for Chips Act 2.0 have been identified.

1. Strengthen the competitiveness of the European semiconductor value chain to enhance technological sovereignty and resilience.
   This objective aims to create the conditions necessary for EU competitiveness, resilience, and technological leadership in semiconductor technologies by:
   (i) accelerating the industrial deployment of research and innovation;
   (ii) ensuring security of supply; and
   (iii) reducing strategic dependencies in both advanced and mature semiconductor technologies.
2. Improve crisis preparedness to safeguard the EU’s security of supply.
   This objective seeks to strengthen the functioning of the internal market by improving crisis preparedness and establishing a harmonised legal framework to protect the Union’s economic security, while enhancing its resilience, strategic relevance, and long-term prosperity in semiconductor technologies.