Staff Report
Brussels is poised to introduce new regulations that will compel European car manufacturers, including industry giants like Volkswagen, Stellantis, and Renault, to diversify their semiconductor supply chains. This legislative push, expected to be unveiled as part of the revamped Chips Act 2 by early next month, signifies a fundamental shift in how the European Union intends to safeguard its critical industrial sectors from future supply disruptions and geopolitical vulnerabilities. The proposed measures underscore a growing conviction within the European Commission that voluntary actions by the automotive sector have not been sufficient to address persistent fragility.
The impetus for this more stringent approach stems directly from lessons learned during recent global supply crises, particularly the semiconductor shortages exacerbated by the COVID-19 pandemic. While the initial Chips Act sought to mitigate such disruptions across various critical sectors through information sharing and proactive steps, the automotive industry was initially exempt from the most rigorous obligations. This leniency is now being re-evaluated, with EU officials suggesting that the time for recommendations has passed, necessitating binding rules to ensure resilience. The current draft legislation, still subject to internal discussions within the Commission, aims to reflect “today’s technology landscape and geopolitical realities,” according to Thomas Regnier, the Commission’s spokesperson for tech sovereignty.
A key catalyst for this regulatory pivot was the Nexperia incident. Nexperia, a Dutch chipmaker acquired in 2019 by Wingtech, a partially state-owned Chinese manufacturing entity, became a focal point of concern. Despite producing relatively basic semiconductors, including those essential for car lights, Nexperia held a significant market share, estimated at 10% globally and up to 40% in the European automotive sector. The situation escalated in December 2024 when Wingtech, and subsequently Nexperia, were placed on the US sanctions list due to potential military applications of their chips. This led to the Dutch government temporarily seizing control of Nexperia to prevent technology transfers, provoking a retaliatory export ban from Beijing on Nexperia chips produced in China. The resulting shortage severely impacted the European automotive supply chain, with major manufacturers reporting mere months of inventory.
Although trade tensions between the US and China eventually de-escalated, leading to the lifting of export restrictions in November, the episode cemented Brussels’ resolve. Policymakers noted the automotive industry’s precarious position, highlighting its over-reliance on a single source. For the European Commission, compelling diversification is seen as a crucial step toward bolstering Europe’s strategic autonomy, reducing dependence on individual suppliers, especially those linked to potentially hostile powers, and simultaneously stimulating demand for European-produced semiconductors. Regnier emphasized that these proposals are not intended to create an undue regulatory burden but rather to ensure resilience and technological sovereignty, which he described as “absolutely crucial.”
The proposed legislation will mandate that carmakers consider supply chain risks, including geopolitical factors, alongside economic considerations during their procurement processes. This means that mere cost-efficiency, often driven by state-subsidized Chinese providers, can no longer be the sole determinant. While diversification inherently carries economic implications, the EU’s stance suggests a recognition that the long-term costs of single-source dependency, as evidenced by the Nexperia situation, far outweigh the immediate financial advantages of relying on highly subsidized foreign suppliers. This marks a clear attempt to integrate geopolitical realities into corporate decision-making, aiming to prevent future shocks and secure the long-term viability of Europe’s vital automotive sector.
