Semiconductors are a backbone in the European Union’s (EU) quest for digital sovereignty and technological leadership. To achieve these ambitious goals, the EU must confront and eventually address critical vulnerabilities in the sector’s value chain. This value chain is quite complex and interrelated with others, as chips are integral components that power industries from automotive and healthcare to defense and artificial intelligence. Yet, it faces critical pressures stemming from concentrated production, raw-material shortages, fragmented regulation and limited supply-chain visibility, all of which amplify Europe’s exposure to supply disruptions and threaten its innovation capacity.
Drawing inspiration from the recent PromethEUs publication focus on Policy Strategies for Semiconductors and Quantum Technologies and comprehensive research from the European Commission’s (EC) Joint Research Center (JRC)[1], this briefing examines five (5) critical vulnerability dimensions and discusses policy levers under the European Chips Act, the Competitiveness Compass, and the Clean Industrial Deal that can be used (or are currently in use) to address them.
- Geographic Dependencies and Production Concentration
Europe accounts for less than 10% of global semiconductor fabrication capacity, with over 75% of advanced node (<10 nm) production concentrated in Taiwan and South Korea, in national champions such as TSMC and Samsung. What is more, nearly 80% of EU-based input suppliers and 63% of their customers lie outside the EU. This critical interdependency magnifies exposure to geopolitical tensions, natural disasters, tariffs, and other supply chain disruptions. To address this, the European Chips Act targets a 20% market share by 2030 through grants for Integrated Production Facilities (IPFs) and incentives for Open EU Foundries (OEFs)[2], underpinned by coordinated national roadmaps and strategic equity stakes by public authorities.[3]
- Critical materials and other intermediate input bottlenecks
Semiconductor manufacturers depend on a narrow suite of critical materials, gallium, germanium, indium, and rare earth metals, over 90% of which are sourced from China.1 But this is not the only dependency case that is worrying. Equally concerning is the reliance on non-EU suppliers for high-purity silicon wafers, photoresists, and advanced packaging substrates. This means that potential disruptions in these upstream stages can have cascading effects in downstream fabrication and assembly stages, rendering them quite sensitive. Building on the Critical Raw Materials Act[4], the Competitiveness Compass recommends establishing joint strategic stockpiles, joint procurement, and targeted R&D for substitute materials that could shield production requirements from shortages and effectively address autonomy issues in the entire supply chain.[5]
- Resource Constraints for Energy and Water
Using TMSC data, Cerutti and Nardo reported for the JRC that a chip manufacturing facility can consume up to 200,000 tons of water per day and reach up to 19.2 TWh of electricity consumption annually. [6] This means that water-scarce regions and overloaded power grids (particularly relevant for Southern EU member states during the summer) can risk production interruptions that result in millions of EUR losses. The Clean Industrial Deal[7] is a suitable lever for mitigating these pressures, as it promotes on-site renewable energy integration, water-recycling mandates, and electrification subsidies that can go hand in hand with the development of chip factories.
- Regulatory Fragmentation and Investment Barriers
Divergent environmental-permit regimes, land-use restrictions, and safety standards across member states prolong production facility approvals and create the usual EU-wide red-tape constraints that erode Europe’s attractiveness for greenfield investment in chips manufacturing.[8] The Chips Act Pillar II and the new Omnibus Simplification Package[9] can help alleviate some of this constraints, as they call for mutual recognition of national permits across the EU and propose fast-track environmental approvals for strategic projects.
- Supply-Chain Transparency and Crisis Monitoring
Dependency analyses for raw materials and intermediate inputs typically rely on trade statistics that capture bilateral volumes and values. Yet, goods often pass through multiple export and re-export stages before reaching their final destination. This implies that direct trade flows cannot fully capture vulnerabilities, as they place significant focus on higher-tier suppliers and thus underestimate the true extent of EU dependencies. Furthermore, limited visibility and monitoring of lower tier suppliers in the semiconductor value chain can significantly impede early detection of disruptions. Under Pillar III of the Chips Act, the JRC has developed the SCAN (Supply Chain Alert Notification) system, combining structural indicators (e.g., market concentration, trade dependencies) with high-frequency signals (price spikes, volume drops) to flag upstream distress and input shortages and also evaluate the EU’s exposure to non-EU partners for key imported products traded within the semiconductor value chain.[10]
[1] Cerutti, I. and Nardo, M. (2023) Semiconductors in the EU: State of play, future trends and vulnerabilities of the semiconductor supply chain. Luxembourg: Publications Office of the European Union. doi:10.2760/038299. Available at: https://publications.jrc.ec.europa.eu/repository/handle/JRC133850
[2] OEFs are “first-of-a-kind” semiconductor manufacturing facilities in the EU -either front-end, back-end, or both-that offer production capacity to unrelated undertakings, i.e., produce chips for other industrial partners and not for their own use, thereby bolstering the Union’s security of supply. Once granted OEF status under Pillar II of the European Chips Act, these facilities benefit from streamlined permitting, priority access to pilot lines, coordinated state-aid support, and, in crisis situations, an obligation to prioritize orders for essential products.
[3] https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en
[4] https://single-market-economy.ec.europa.eu/sectors/raw-materials/areas-specific-interest/critical-raw-materials/critical-raw-materials-act_en
[6] For perspective, this equates approximately 1% of the EUs entire electricity generation in 2022.
[8] European Parliament (2022) Briefing: Strengthening EU Chip Capabilities. Brussels: European Parliamentary Research Service. Available at: https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/733585/EPRS_BRI(2022)733585_EN.pdf
[9] https://single-market-economy.ec.europa.eu/publications/omnibus-iv_en
[10] Molnár, J., Nardo, M. and Zaurino, E. (2024) A methodological toolbox to monitor the semiconductors’ supply-chain. Luxembourg: Publications Office of the European Union. doi:10.2760/5085463. Available at: https://publications.jrc.ec.europa.eu/repository/handle/JRC138921