Study backs beefing up European chip ambitions

There’s “a credible and structurally grounded” business case for continued and expanded investment in the European semiconductor industry, a study commissioned by FME, ZVEI and the German and Dutch governments argues. European semiconductor demand is strong and growing, cost disadvantages are manageable and the business climate isn’t as bad as some would have it, the report states. The question facing policymakers isn’t whether to invest, but where to focus investments to maximize competitiveness and resilience.

The study arrived just ahead of the European Commission revealing the contours of a second EU Chips Act. Eyeing 120 billion euros in public-private investment, the new framework takes a broader perspective on boosting the bloc’s semiconductor industry, both in terms of supported technologies and in the variety of stimulatory mechanisms.

Rule of law

Titled “Europe’s semicon business case,” the report forecasts that European semiconductor consumption will roughly double by 2040, driven by electrification, industrial automation, artificial intelligence, data centers, healthcare technology and defense applications. Industry demand, which measures the semiconductor content of products manufactured in Europe and sold globally, is expected to grow even faster, increasing by a factor of 2.4. That distinction is important because it reflects the strength of Europe’s export-oriented industries, particularly automotive, industrial equipment and energy technology.

The report identifies several structural drivers behind this growth. Electric vehicles contain substantially more semiconductor content than combustion-engine vehicles. Renewable energy systems, smart grids, heat pumps and charging infrastructure are becoming increasingly chip-intensive. At the same time, AI is driving demand for data centers and edge computing infrastructure, while industrial automation and robotics continue to expand semiconductor consumption across Europe’s manufacturing base. Healthcare and defense add further momentum as digitalization, AI integration and sovereignty concerns increase demand for advanced electronics.

Not all opportunities are equal, however. Europe is particularly well positioned in power semiconductors, sensors, microcontrollers and communications chips, areas where domestic manufacturers already have strong market positions. These segments align closely with Europe’s existing industrial strengths and are expected to enjoy robust long-term growth. Emerging technologies such as integrated photonics, quantum chips, edge AI and neuromorphic computing are highlighted as additional areas where Europe can leverage its research base.

By contrast, the fastest-growing semiconductor categories – including GPUs, advanced logic and memory – are famously largely absent from European production. The report advocates a phased strategy that starts with chip design and advanced packaging before attempting to build broader manufacturing capabilities in these fields. In these areas, the cost difference with Asia is relatively low (15-20 percent) and therefore manageable with proper government stimulus. Furthermore, the industry shift toward chiplet-based architectures offers opportunities to integrate European-designed and/or -made specialized chips into more advanced systems.

Energy costs are the largest contributor to the 15-30 percent cost gap with other parts of the world, followed by labor and construction costs. Lower electricity costs through tax reductions, grid-fee exemptions and government-supported power purchase agreements could narrow the gap by 3-6 percentage points. Greater automation and smart manufacturing could shave off another 2-5 percentage points. Remaining differences would require policy support through accelerated depreciation schemes, capital expenditure incentives and R&D tax credits.

The third pillar concerns location conditions. Here, Europe performs surprisingly well. Compared with major semiconductor regions worldwide, Europe scores highly on infrastructure quality, political stability, intellectual property protection and the rule of law. These are long-term structural advantages that are difficult for competing regions to replicate. The report views them as important assets for attracting investment, especially in a geopolitically fragmented world where supply chain resilience has become a strategic concern.

Elsewhere

Still, the study identifies three weaknesses that risk undermining Europe’s attractiveness. The most pressing is talent. Semiconductor companies face growing shortages of engineers and technical specialists, prompting calls for dedicated education programs, industry reskilling initiatives and a fast-track European talent visa. Incentive programs are also criticized for their slow approval processes, which can take between 12 and 24 months. Finally, regulatory complexity across European, national and regional levels adds cost and delays to investment projects. Faster permitting, pre-approved industrial zones and greater policy harmonization are among the proposed remedies.

Taken together, the report argues, what Europe lacks most is a sufficiently competitive investment environment. Closing that gap, the authors argue, will determine whether Europe’s growing appetite for chips translates into domestic industrial growth or continues to be satisfied elsewhere.