Chips Act 2.0: Europe’s second attempt to close the chip gap

Last week, the European Commission presented its legislative proposal for the Chips Act 2.0. The aim is to establish Europe’s semiconductor strategy on a sovereign footing in the long term. However, our Head of Portfolio Management, Jörg Held, points out that processes, regulations and bureaucracy must be overcome before the draft becomes law. For investors, this means that European chip champions remain attractive, but the political timetable is dampening the euphoria.

Those who do not manufacture chips themselves become dependent. The coronavirus pandemic demonstrated this when disrupted global supply chains brought production lines in Europe to a standstill. The first Chips Act of 2023 was intended to resolve the issue of supply bottlenecks. The promise at the time was to double Europe’s share of global chip production to 20 per cent by 2030. The plan has not worked out. The European Court of Auditors now expects just under 12 per cent instead of the planned 20 per cent. One reason for this lies in the design of the first Chips Act: it focused almost exclusively on the supply side, i.e. the construction of chip factories. Added to this were difficulties in applying for funding due to EU bureaucracy.

The timetable remains the problem

With the Chips Act 2.0, Brussels is attempting to turn this around: moving away from simply subsidising factories towards stimulating demand. The Commission aims to bring companies from the telecommunications, defence and mobility sectors together with producers in the European chip industry in a targeted manner. European products are to be given preference in procurement contracts. Furthermore, for the first time, the Commission is to be able to invest directly in large, cross-border projects, rather than merely funding research.

However, the draft is not yet law. The next step is for it to be negotiated and finally adopted by the European Parliament and the Member States in the Council of the EU. Examination and deliberation in Parliament and the Council will follow in the second half of 2026. Trilogue negotiations are expected to begin in early 2027. The final vote in the European Parliament and formal adoption by the Council of the EU could follow in mid- to late 2027. Publication in the Official Journal of the EU and the entry into force of the regulation would not be expected until late 2027 or early 2028.

This could take up to 18 months. For an industry that thrives on speed, innovation cycles and investment windows, that is a long time. Processes and regulations are and remain Europe’s biggest problem.

120 billion euros. Where is the money supposed to come from?

In total, the plan aims to mobilise around 120 billion euros in public and private funds by 2035. The largest share will come from industry investment: semiconductor companies such as TSMC, ASML, Infineon and Bosch are set to build factories and research centres. Companies in the telecommunications, defence and mobility sectors are expected to provide planning certainty through long-term off-take agreements.

Added to this are funds from the European Commission from existing research programmes such as Horizon Europe and Digital Europe. For the period after 2028, the Commission is calling for a central budget of around 20 billion euros within the next multiannual EU budget.

Thirdly, national subsidies from the Member States are to underpin the development. Germany is likely to shoulder the largest share due to the existing project pipeline with Intel in Magdeburg and ESMC/TSMC in Dresden. €15 billion in funding has already been pledged here. France, Italy, the Netherlands and Ireland follow with their own priorities.

Which sectors stand to benefit

The Chips Act 2.0 is important, but Europe remains a follower. The real opportunity lies with the individual European champions, rather than in relying on Brussels to sort everything out.

In many respects, Europe is the source of the pickaxes for the global chip gold rush. No one can bypass the European global market leaders within this supply chain. It is precisely this strength that the Chips Act 2.0 aims to bring home. Five areas are particularly relevant here:

Equipment for lithography and manufacturing:

This is where Europe’s crown jewel lies. ASML from the Netherlands is the only company in the world to build the most advanced lithography machines. ASM International leads the way in a technology that applies layers of material atom by atom. Aixtron from Germany is a leader in equipment for chips used in electric cars.

Speciality wafers:

Before a circuit can be implemented, the perfect substrate is required. Soitec from France is a pioneer in particularly energy-efficient semiconductor technology. Siltronic from Germany is one of the world’s largest manufacturers of high-purity silicon wafers.

Ultra-pure gases and chemicals:

No factory can operate without them. Air Liquide from France supplies the ultra-pure gases, whilst Germany’s Merck KGaA from Darmstadt provides the necessary speciality chemicals. Both are building their plants right next to new mega-factories, for example in Dresden.

Testing and packaging of finished chips:

Europe has long been weak in this area, but is catching up. Besi from the Netherlands is a leader in assembling modern AI chips from multiple components.

The major chip manufacturers:

Infineon from Germany, STMicroelectronics and NXP from the Netherlands are the European heavyweights in chips for cars, energy and industry. Ultimately, the Chips Act is intended to create demand for them.

Europe has the right companies; whether Brussels provides the appropriate framework in time remains to be seen. For investors, this means: European champions remain attractive, but the political timetable calls for patience; too much patience could become a risk. Those who start too late may end up supplying their capacity to a market that is already saturated.