BRUSSELS — The EU is scrambling to redo its homework on building a secure supply of microchips after it was forced to accept it has made little progress on tackling its dependence on the U.S. and China. The EU recently dodged a bullet for the second time this year when a weeks-long disruption fueled by trade tensions between the U.S. and China saw European carmakers warn in October that their assembly lines could grind to a halt. That left the bloc reckoning with the reality that its first EU chipmaking plan — launched in 2022 to huge political fanfare in the wake of pandemic supply-chain disruptions — has had little impact on the bloc’s exposure to foreign production. The European Commission announced it would accelerate a planned review of its chipmaking efforts, with a new proposal expected by the first quarter of 2026. The latest crisis centered on Dutch-based, Chinese-owned chipmaker Nexperia — a key supplier to European carmakers. In late September, the Dutch government seized control of Nexperia due to concerns that its technology was being leaked to China. The U.S. and China imposed export controls on the company. With chips essential for everything from electric cars to artificial intelligence, both the U.S. and China showed a willingness to weaponize microchip supply chains to gain an advantage in the development of new technologies. Industry insiders say it was a reality check for Brussels. The EU’s first chipmaking effort was “like a band-aid” and now the patient — the bloc’s microchip economy — needs a “full, general operation,” said Alison James, a senior director at the Global Electronics Association, which represents the electronics industry globally. Among the criticisms are that the EU failed to properly address geopolitical realities in its 2022 plan, and that it also targeted the wrong type of chips, dazzled by hype about the most advanced microchips. Most industries function on basic microchips, with each car produced in Europe needing hundreds of these. WHAT WENT WRONG? The bloc’s first chipmaking plan had a clear goal: It wanted to boost the region’s market share, which had been in decline for decades, to 20 percent of the global industry by 2030. In reality, it has hardly moved the needle from the 9 percent share it held three years ago. The plan, in the form of a Chips Act, introduced the possibility of designating some factories as “first-of-a-kind” if they introduced new technology to the bloc, with manufacturers to be offered extra encouragement such as more flexibility on permitting and subsidies. Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. | Robert Michael/picture alliance via Getty Images Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. Initially, Intel pledged €30 billion for a factory in the east of Germany, but canceled the plans after landing in financial trouble. TSMC is building a factory in Germany, but on a much smaller scale than its projects in the U.S. In parallel, Europe’s remaining chip assets have become further entangled in a geopolitical tit-for-tat. The U.S. piled pressure on the Dutch government to block exports to China from Dutch company ASML, the world’s leading manufacturer of high-end chipmaking machines. In the final week of the Biden administration this past January, the U.S. restricted the supply of AI chips to certain EU countries. That led to calls from both EU countries and European Parliament lawmakers for a second go-around at a chipmaking strategy. “This new chips proposal should feature a long-term strategy rooted in current geopolitical realities,” read a March letter sent by dozens of lawmakers. BORING IS FINE The Nexperia case served as an example of how the chips war is now being fought through export controls and national security tools, which aren’t yet part of Brussels’ repertoire. It also reinforced the importance of “boring” chips after a year-long craze about AI chips, which are built to handle tasks such as machine learning and language processing. Yet in announcing plans for the second effort, the EU’s tech sovereignty commissioner Henna Virkkunen said: “We are now preparing Chips Act 2, to make sure that Europe will be able to design and manufacture AI chips.” She later hinted it might also focus on stockpiling. Experts argue Brussels needs to examine the entire chip industry, rather than focusing on providing billions of subsidies for factories that produce advanced AI chips. “Up until a few weeks ago, the conversation on chips was really driven by advanced chips, AI chips,” said Chiara Malaponti, the geoeconomics program coordinator at the European Council on Foreign Relations. “But then you also have the case of Nexperia, which isn’t really about that, but about mature semiconductors,” she argued. “You saw the consequences of the events of past weeks, and how they had a huge impact on our industry.” Malaponti advocated for a comprehensive mapping exercise as part of Brussels’ second effort. “[The first chips act] put an emphasis on manufacturing, which is cool, of course, but there are also other parts of the supply chain,” she said, adding that it will be important to understand Europe’s strengths. “How we can cultivate those niches and how we leverage them is something that needs to be discussed as well,” said Malaponti. The industry is also a proponent of examining the full chain of production from beginning to end, rather than just focusing on the front-end manufacturing. “The chain is only as strong as the weakest link,” said James. “You’ve seen the chokepoints. There are many other chokepoints in the back-end of the electronics supply chain.”

BRUSSELS — The geopolitical war around Dutch-based, yet Chinese-owned, chip supplier Nexperia is terrifying Europe’s carmakers that they’ll be hammered by a chip shortage that could wreak havoc with supply chains and shutter production lines. The car industry’s supply of crucial chips from Nexperia is dwindling just weeks after the Dutch government seized control of Nexperia and both the U.S. and China imposed export controls on the company.  “We will see production stops and slowdowns in short order globally because a lot of suppliers don’t have the depth of stock of the chips,” said a senior automotive official who spoke on condition of anonymity because of the issue’s sensitivity. “The auto sector is at the heart of the storm.”  Nexperia chips are used throughout the automotive value chain in everything from airbags to entertainment systems. The shortage threatens a replay of 2022, when pandemic-era microchip shortages similarly brought car plants to a halt. Yet automakers have done little to shore up their supply chains against geopolitical shifts, and an EU plan to reshore some chip manufacturing is falling far short of its targets.  The Dutch-based chipmaker warned its customers of an “unforeseen development that may affect the availability of certain products,” according to a force majeure declaration issued on Oct. 9, reported on by several media and seen by POLITICO.  The notice lit a fire under automakers and their suppliers to get their hands on any available chips, provoking a run on the materials. “It’s like the pandemic when people went on toilet paper buying sprees,” said a second auto industry insider. TOP OF THE LIST Following the 2022 shortage, the EU passed the Chips Act to alleviate the sector’s dangerous reliance on other regions for advanced or “mature” chips. Fast forward three years, and seemingly not much has changed.  This time, mayhem kicked off when the Dutch government decided at the end of September to invoke a 1952 national law to seize control of Nexperia, which was acquired by Chinese company Wingtech in 2019. The Dutch government feared that Nexperia’s CEO, who founded Wingtech, was transferring the chipmaker’s technology and production assets out of the country. Its decision came a day after the U.S. extended export controls on Wingtech to its subsidiary Nexperia. Four days after the Dutch seized control of Nexperia, the Chinese Commerce Ministry imposed export controls on Nexperia China, prohibiting the export of components manufactured in China.  Chips are ubiquitously used in modern manufacturing, driving the green and digital transition. While Nexperia’s chips are not the most advanced ones, they are critical to automakers: A traditional car contains up to 500 of the company’s chips — an electric vehicle as many as 1,000. China’s export clampdown on the chips, coupled with its control of rare-earth magnets — an equally important vehicle component — have sent the Nexperia crisis to the top of Brussels’ list of priorities. “The issue of chips is one of big importance, for many aspects of our policy, most notably the energy transition,” European Commission chief spokesperson Paula Pinho said on Monday. She added that Industry Commissioner Stéphane Séjourné raised the issue in a meeting with industry leaders on the same day, “to hear from the companies whether there are shortages.”  The companies’ input fed into a call between EU trade chief Maroš Šefčovič and his Chinese counterpart Wang Wentao on Tuesday. Next up is an anticipated visit by Chinese officials to the EU to discuss the export controls. Companies have already begun publicly discussing the potential impact of what’s happening at Nexperia.  Car lobby group ACEA said last week that it was “deeply concerned by potential significant disruption” to manufacturing if there was no quick resolution of the interruption of Nexperia’s supply of chips.  The group argued that the chips coming from Nexperia could be sourced elsewhere, but shifting would take longer than the current stock of Nexperia chips would last.  Volkswagen has warned its workers that potential production stoppages are imminent, German outlet Bild reported.  “Nexperia is not a direct supplier of the Volkswagen Group. However, some Nexperia parts are used in our vehicle components, which are supplied to us by our direct suppliers,” a VW spokesperson told POLITICO. “At this time, our production is unaffected. However, given the evolving circumstances, short-term effects on production cannot be ruled out.” SECOND CHIPS ACT The Nexperia case and possible shortages have put the EU’s dangerous microchip reliance back on the political map.  The European Commission announced this week that it plans to introduce a second Chips Act in the first quarter of next year, following a scheduled review due by September 2026.  Currently, the bloc is nowhere close to reaching the goal of the first Chips Act, which was to boost the bloc’s market share in the global microchips value chain to 20 per cent by 2030 — about double its current share.  Both lawmakers and EU countries want a second Chips Act.  “The European Chips Act 2.0 is in the making. But the Nexperia case shows the time is short,” Herman Quarles van Ufford, senior policy fellow at the European Council for Foreign Relations, said in a blog post on Wednesday.

President Donald Trump on Friday said the U.S. government had reached a deal to take a 10 percent equity stake in the chipmaker Intel, worth approximately $10 billion. “I said, I think it would be good having the United States as your partner,” Trump said Friday at the White House. “[CEO Lip-Bu Tan] agreed, and they’ve agreed to do it.” Commerce Secretary Howard Lutnick confirmed the deal in a post on X on Friday: “BIG NEWS: The United States of America now owns 10% of Intel, one of our great American technology companies.” Intel posted details of the plan soon afterward, saying the administration would make an $8.9 billion investment in Intel common stock, paid for with the CHIPS grant money. The company said the stake would be funded with $5.7 billion in grants previously awarded but not yet paid, and $3.2 billion from a separate Defense Department program. It said the Trump administration will take “passive ownership, with no Board representation or other governance or information rights.” “We are grateful for the confidence the President and the Administration have placed in Intel, and we look forward to working to advance U.S. technology and manufacturing leadership,” Tan said in a statement. The deal appears to rewrite the terms of the 2022 CHIPS and Science Act, under which Intel received $10.9 billion in grants to boost American chipmaking. The unusual deal drew scattered criticism from Republicans who saw it as violating free-market principles. “I don’t care if it’s a dollar or a billion dollar stake in an American company, that starts feeling like a semi-state owned enterprise, à la [the Chinese Communist Party],” said Sen. Thom Tillis (N.C.), in comments that surfaced Friday. “You’re going to have to explain to me how this reconciles with free-market capitalism.” Sen. Rand Paul (R-Ky.) also publicly criticized the plan this week. Intel, which has struggled to compete against its global chipmaking rivals, was the largest recipient of CHIPS Act funds. Its continued business problems, as well as Congressional inquiries into CEO Lip-Bu Tan’s ties to Chinese industry, gave Trump an opening to attack the CEO on social media, and pull him into in-person negotiations. The Trump administration has been taking a heavier hand in the microchip industry overall, including a deal to let Nvidia and AMD export high-tech chips to China in exchange for paying Washington 15 percent of their revenues. As with the Intel investment, it’s unclear how the government would administer the novel arrangement. On Friday, several Democratic legislators introduced a bill to limit Trump’s ability to change policy on high-tech national security without consulting Congress, but without Republican support, it’s unlikely to move further.