The European semiconductor sector continues to discuss policy as it prepares for a power deficit.

Germany aspires to become a major center for the production of semiconductors. The nation has also emerged as a pioneer in Europe’s drive to reclaim global semiconductor supremacy as its world-class automotive industry undergoes digitalization and electrification. While Saxony already has Europe’s largest chip ecosystem and hopes to lure foundries like TSMC to establish a local presence, Intel announced its plan to invest at least US$19 billion into a cutting-edge fab in the city of Madgeburg, located in the German state of Lower Saxony, in March. Lower Saxony is a federal state in Germany. GlobalFoundries also said in 2021 that it intended to invest US$1 billion for Fab 1 expansion over the following two years. Fab 1 is a 300mm fab located in Dresden, the capital of Saxony. However, both internal and external influences work against the momentum.

Auto OEMs and suppliers already cut back on gas consumption as a result of Germany’s effort to lessen its dependency on Russian gas, but long-term production output would be jeopardized, according to manufacturers like BMW, according to Automotive News Europe. Short-term solutions, like switching to coal or oil, require government assistance with carbon emission-related approvals, while the German Association of Automotive Industry (VDA) cautioned that switching the whole auto industry to green electricity would result in a 15% increase in grid demand. Meanwhile, rising electricity costs could reduce the desire for EVs. German EV supporters are encouraging the government to stabilize electricity costs, particularly when EV subsidies are anticipated to be cut in half starting in 2023, according to the Guardian.

The situation might also be potentially dangerous for a power-hungry industry like semiconductors, especially given how closely the European chip industry is linked to the move to electric vehicles in the automotive industry. Last year, for instance, a 20-minute power outage in Dresden reportedly compelled Infineon to cease its production activities there. Regarding the energy problem the German semiconductor sector is currently facing, Frank Bosenberg, managing director of Silicon Saxony e.V., told DIGITIMES Asia that the situation is “yellow,” not “green,” but also not “red.” The director stated that the problem is already being addressed by Berlin’s government. The director, on the other hand, claimed that the lack of sizable vacant industrial regions would be the biggest obstacle to Saxony’s capacity to draw in megafabs.

According to the Financial Times, as a last resort, Berlin may have to reduce electricity exports to France and other European nations in order to avert the collapse of its power grid. The German government also unveiled a EUR200 billion program last week to assist consumers and business leaders in paying growing energy costs through an immediate cap on gas and electricity rates.

Borrowing and Berlin’s Economic Stabilization Fund, which was established at the height of the Covid-19 epidemic, would be used to pay for the package. However, the decision was also criticized by other EU member states.

Leading figures in the European semiconductor business are still skeptical about the European Chips Act, a EUR43 billion EU project. Kurt Sievers, CEO of NXP Semiconductors, was the latest European chipmaker to complain about the European Chip Act’s limitations last week at a technology summit hosted by GlobalFoundries in Dresden. Sievers noted that EUR500 billion would be required for European chip manufacturing capacity to achieve the bloc’s stated ambition to capture 20% of the global semiconductor market share by 2030. Overall, the European chip industry is still debating whether or not it requires cutting-edge fabs like the one TSMC is constructing in Arizona, the US, given that its semiconductor business is predominantly driven by the automobile industry.

In a conversation with DIGITIMES Asia, Woz Ahmed, a former chief strategy officer at the British silicon IP firm Imagination Technologies, remarked that “governments have a very high-level perspective of semiconductors, and entirely miss the complexity.” Ahmed brought attention to the practical issues relating to prices, utilization, and talent that made “complete resilience” unachievable even with the on-shoring of fabs as “resilience” became the newest term sweeping through political corridors in the US and Europe. “How will you fill it even if you create fabs? Instead of absorbing new demand, you might just shift a fab’s usage elsewhere “Ahmed took note. Where will the abilities come from as well?

Ahmed also pointed out that traditional car devices like engine management, power, and body electronics are the main competencies of European chipmakers like STMicroelectronics and Infineon, noting that these businesses have attempted and failed to produce complicated SoCs, like smartphone chipsets. These chipmakers probably came to the conclusion that modern fabs designed for more complex chipsets don’t meet the needs of traditional auto chipmakers after considering the market environment. Ahmed said that gaining government backing would include agreeing to the latter’s terms and conditions, as shown in the US Chips Acts. “They also, appropriately, worry about fab overcapacity, and worry that they have to pick the tab when it fails,” he added. Because of the long lead times for equipment and the cyclical nature of the sector, “I predict many fabs will be erected, but not equipped.”

The former Imagination executive stated, “Manufacturing site is not the sole consideration,” in reference to a number of elements, including where design-in choices for auto chips are made. Ahmed said that cooperating with allies and government guarantees for retaining significant stockpiles on-shore could be preferable to “resilience” instead. Ahmed noted that “a paradigm shift” on the side of automakers will be needed in order for them to collaborate with these companies as Europe pushes for more entrepreneurs to address vehicle electrification.


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