US versus EU Chips and the Energy Transition

The US has maintained a 45%-50% market share of global microchip revenue over the past 30 years, even in the peak of the pandemic supply chain crisis. Simultaneously, however, the country’s share of global chip manufacturing has dropped to just 12%. In response, national incentives are spurring manufacturers to reshore production of these critical components. The US CHIPS and Science Act provides nearly $53 billion for manufacturing, while the EU reached a political agreement on its own €43 billion European Chips Act in April 2023. With the US and EU mostly past the point of trade tensions, the dueling schemes have the potential to shore up component supply for the energy transition and drastically transform the microchip landscape over the coming decade.

What’s Included in the CHIPS and Science Act?

Passed in 2022, the CHIPS and Science Act makes available a total of $280 billion over the next 10 years for reshoring advanced semiconductor production as well as boosting domestic R&D efforts. Major funding provisions include the following:

• Section 9902: $3 billion investment in facilities and equipment for manufacturing and R&D.
• Section 9903(b): Establishment of the Microelectronics Commons, a national R&D network, to facilitate laboratory-to-manufacturing transitions and expand US leadership.
• Section 9906(c-f): Authorization of the National Semiconductor Technology Center, the National Advanced Packaging Manufacturing Program, and the Manufacturing USA institute with a consortium of private sector, Department of Energy, and National Science Foundation stakeholders.

The US Department of Commerce’s CHIPS Program Office released its first funding opportunity in February 2023 for commercial microchip facilities, with additional federal funding expected later in the year. Nearly $50 billion in associated private investments have been announced as of August 2022.

What about the European Chips Act?

The provisional agreement for the European Chips Act, approved by the EU Council and EU Parliament in April 2023, paves the way for a 20% increase in EU-sited microchip manufacturing by 2030. The bill has three main pillars:

1. Support for production and innovation capacity across the EU, including pilot development, new technology encouragement, platform design, resource access, quantum chip support, workforce training, and the establishment of a €3.3 billion debt-financing Chips Fund.
2. Framework for attracting semiconductor production capacity to ensure security of supply.
3. Supply monitoring and development of crisis response tools by member states and the European Commission.

Under the agreement, imec, a leading Belgium-based nanoelectronics research center, will receive over €1 billion to lead regional semiconductor development. The plan has already attracted public and private investments of over €90 billion, with Intel announcing up to €80 billion in EU investments across the value chain.

Geopolitical Considerations

Alongside the categorization of microchip production under national security initiatives, provisions addressing geopolitical tensions have been included in both legislations. The US CHIPS Act restricts funding to any designated “foreign entity of concern” and institutes clawback mechanisms for those that undertake advanced microchip-related activities with such countries, most notably China. In the EU, eligibility for the Chips Fund under the Digital Europe Programme is limited to European Economic Area entities and a handful of partner countries (not including the US).

Balancing Supply with the Energy Transition

Access to advanced semiconductors is critical to ensuring the proliferation of renewable technologies in the transition to green energy. Computing technologies are omnipresent in the management, conversion, and storage of flows from renewable generation technologies to the electric grid, as well as in rapidly proliferating EVs. Guidehouse Insights expects plug-in EV deployments in North America alone to reach 40 million units by 2031; as EVs, charging stations, and clean energy technologies become more sophisticated, additional semiconductors will be required to control advanced and increasingly automated features.

For more information on the accelerating global EV market, check out Guidehouse Insights’ new EV Sales and Specifications Tracker.