“Investment Is Growing, but Self-Sufficiency Remains Elusive”: Doubts Mount Over EU Chip Policies as Calls Grow to Rethink Strategy for Attracting Global Companies

EU’s drive to attract large-scale investment for semiconductor self-sufficiency yields limited results
Despite investment by TSMC, Infineon and others, securing cutting-edge chip production facilities proves difficult
Greater emphasis on upgrading existing facilities and investing in R&D than building new plants

The European Union’s (EU) plans for semiconductor supply chain self-sufficiency are faltering. Despite the EU’s push to expand semiconductor production facilities within the bloc through substantial subsidies, investment by global chipmakers has struggled to gain momentum amid constraints specific to the European market, including high production costs and regulatory barriers. Indeed, European investments by major companies such as TSMC, Intel and Nvidia are increasingly focused on upgrading existing production facilities and building research and development (R&D) capabilities rather than constructing cutting-edge manufacturing plants.

Cost and Regulatory Barriers in the EU Semiconductor Market

According to European news outlet EU Perspectives on the 15th (all dates hereafter are local time), Berlin-based technology policy think tank Interface recommended in a policy report released that day that “the EU should expand cooperation incrementally rather than focus on attracting large-scale production facilities from South Korean semiconductor companies.” Its analysis was that higher semiconductor production costs in Europe than in Asia, coupled with substantial regulatory pressure, leave South Korean companies with insufficient economic incentives to build large factories there. Data from the German Electro and Digital Industry Association (ZVEI) show that semiconductor production costs in Europe were 15–30% higher than in cost-competitive parts of Asia. In Germany in particular, labor costs were estimated to be 3–4 times higher than in Asia, electricity rates 2–3 times higher, and factory construction costs 20–25% higher.

The European Chips Act 2.0, which the EU is pursuing, has also been identified as a barrier to market entry. Under the Chips Act 2.0 proposal, foreign companies receiving public funding from the EU may have to provide supply chain information to EU authorities and respond to requests for information about production and supply disruptions. In the event of a semiconductor supply crisis, they could also be required to prioritize orders from critical industries in Europe. This would increase the burden of disclosing sensitive information while restricting autonomy over production and supply decisions. The report therefore argued that the EU should reconsider how it cooperates with South Korean chipmakers. It called for an incremental approach, including establishing a consultative body between the South Korean and EU semiconductor industries, expanding joint R&D, setting up joint ventures using research results, and making small-scale investments. Promising areas for cooperation included AI chip design, environmentally friendly semiconductor technologies, compound semiconductors and defense semiconductors.

Effectiveness of Semiconductor Self-Sufficiency Strategy Remains Uncertain

These recommendations come against the backdrop of the EU’s plans for semiconductor supply chain self-sufficiency. The EU previously set a target of raising Europe’s share of revenue in the global semiconductor value chain to 20% by 2030 and brought the European Chips Act into force in September 2023. The legislation centers on strengthening the industrial ecosystem, from semiconductor R&D to design and production, and using subsidies to encourage global chipmakers to invest within the bloc. According to the European Commission, investment in manufacturing facilities within the EU announced or planned since the act took effect totals EUR 80 billion (approximately USD 92.3 billion), with public and private investment committed to production facility projects currently underway exceeding EUR 52 billion (approximately USD 60.0 billion).

Despite attracting enormous investment, however, whether the EU can achieve its semiconductor self-sufficiency goal remains uncertain. Commission statistics show that Europe accounted for just 10.5% of global semiconductor value chain revenue in 2024, with its share estimated to have fallen to 8.8% last year. Although revenue in Europe’s related industries is growing, its position in the global market has shown little improvement as major regions such as the United States and Asia continue to attract large-scale investment. In a report released last April, the European Court of Auditors (ECA) also projected that the EU’s share of the global semiconductor value chain would reach only 11.7% in 2030, well short of its 20% target, concluding that the existing Chips Act alone would effectively be insufficient to meet the goal. Moreover, the EU’s semiconductor competitiveness is reportedly limited to certain segments, such as power semiconductors, microcontrollers and semiconductor manufacturing equipment, while its dependence on the United States and Asia remains high in key technologies, including advanced chips below 5 nanometers (nm).

Investment in Advanced Chips Remains Rare

These limitations are also evident in actual investments in semiconductor production facilities. Companies that have recently invested in European facilities are expanding production primarily in product categories where Europe already has strengths, including automotive and industrial chips and power management semiconductors. A prime example is the semiconductor plant under construction in Dresden, Germany, through a joint venture involving Taiwan’s TSMC, Germany’s Infineon and Bosch, and the Netherlands’ NXP. The project, undertaken through a joint venture called the European Semiconductor Manufacturing Company (ESMC), broke ground in August 2024 with EUR 5 billion (approximately USD 5.77 billion) in subsidies from the German government and aims to begin operations in late 2027. Once completed, it will have the capacity to produce 40,000 12-inch (300 mm) wafers per month and will manufacture automotive and industrial chips using four process nodes: 28 nm, 22 nm, 16 nm and 12 nm.

Germany’s Infineon opened its EUR 5 billion Smart Power Fab in Dresden this past July. The facility produces power semiconductors and analog and mixed-signal chips using 12-inch wafers. US-based GlobalFoundries has also announced plans to invest EUR 1.1 billion (approximately USD 1.27 billion) in its existing Dresden production site to increase annual 12-inch wafer capacity to more than 1 million by the end of 2028. It also plans to introduce FDX Fusion, a manufacturing technology for low-power, highly integrated chips, to expand production of semiconductors used in vehicles and industrial equipment. An industry official noted, “TSMC’s Dresden plant will not use the leading-edge 2–3 nm processes currently commercialized in the global advanced foundry market, and the FDX Fusion technology being developed by GlobalFoundries also differs from technologies for mass-producing cutting-edge chips for high-performance computing.” The official added, “Despite the expansion of semiconductor production capacity within the EU, dependence on overseas production facilities for advanced artificial intelligence (AI) computing chips and high-performance memory remains largely unresolved.”

Nvidia Focuses on R&D and Other Areas

Nvidia is likewise focusing on acquiring stakes in local companies, supporting R&D and training specialists rather than building new factories in Europe. A representative example is its announcement last June of plans to establish or expand AI technology centers in six countries: Germany, Sweden, Italy, Spain, the United Kingdom and Finland. Nvidia is pursuing joint research in healthcare and robotics in Bavaria, Germany, while providing technical support and practical training to local researchers in Sweden. In Italy and Spain, it is expanding AI computing infrastructure through CINECA, a national supercomputing research institution, and the Barcelona Supercomputing Center, respectively.

On the 13th, Nvidia CEO Jensen Huang also announced during a visit to Paris, France, that the company would invest an additional USD 2 billion (approximately USD 2.05 billion) in Europe. This funding is separate from the USD 8 billion (approximately USD 8.21 billion) Nvidia has invested in Europe over the past year. The new investments include French healthcare platform Doctolib, robotics developer Genesis AI, enterprise software company Pigment and AI-based materials research company Entalpic. Individual investment amounts for these companies were not disclosed.

Table 1. European Investments by Major Semiconductor Companies

Intel Scraps New Plant Plans and Invests in Existing Facilities

US-based Intel is also making large-scale investments in European semiconductor production facilities, but is focusing on improving existing manufacturing sites rather than building new plants. Intel originally planned to invest EUR 30 billion (approximately USD 34.6 billion) to build two advanced chip plants in Magdeburg, Germany, and establish a semiconductor assembly and testing facility in Wrocław, Poland. The German government had also sought to provide approximately EUR 10 billion (approximately USD 11.5 billion) in subsidies for the Magdeburg project. Both projects, however, were definitively canceled last July because of Intel’s deteriorating financial performance and adjustments to its investment spending.

Intel subsequently announced this past July that it would invest an additional EUR 5 billion in its Leixlip production site near Dublin, Ireland. The Leixlip site, which Intel has operated since 1989, is a key European semiconductor manufacturing hub producing high-performance processors using the Intel 4 and Intel 3 processes. The investment will be used to upgrade production lines in existing cleanrooms, introduce advanced manufacturing equipment and expand automated transport systems connecting multiple manufacturing facilities on the campus. Through these measures, Intel plans to increase production capacity for next-generation server processors using the Intel 3 process and respond to growing semiconductor demand in the AI and high-performance computing (HPC) markets.