Europe eyes car chips as next battleground with China
Europe is widening its focus from high-tech to low-tech microchips as it fears a fresh challenge from Chinese subsidized firms to supply the electric vehicle boom.
The European Commission will start to question microchip suppliers and customers about legacy chips and whether there is a dependency on China supplies, it told POLITICO in a statement, with first results expected by the end of summer.
Officials fear a challenge to the bloc's market power on so-called legacy microchips — older-generation technology used in cars, household appliances and medical devices. The move follows a similar one in the United States, where the government launched a survey on the topic in January.
At a high-level summit between European Union and U.S. top officials in Belgium in April, U.S. Commerce Secretary Gina Raimondo warned these “workhorse” chips were on Beijing's radar as the next area to conquer.
“We know there’s a massive subsidization of that industry on behalf of the Chinese government, which could lead to huge market distortion,” Raimondo said, estimating that China will produce around 60 percent of the legacy chips coming to the market in the “next handful of years.”
In the past two years, the first round of the global chips war focused on more advanced chips. Washington rolled out a strategy in the past two years to cut off China from accessing high-tech microchips technology by curbing the export of designs and equipment to manufacture them. It pressured the Netherlands, Japan and other allies to block exports, most notably those of cutting-edge printing equipment made by Dutch tech champion ASML.
Legacy chips have larger “nodes,” making them easier to manufacture but unsuited for leading technology like smartphones.
For the less advanced models, European chips companies have a strong foothold — especially in manufacturing models that serve the automotive industry and the burgeoning electric vehicle market.
Companies like Germany's Infineon, the Netherlands' NXP and French-Italian STMicro are leaders in these field, a recent report showed. These firms sit on piles of intellectual property and patents on automotive chips, largely because they grew around Germany's, France's and Italy's car manufacturing industries.
Today, these European chips makers are well-placed to supply the booming electric vehicle market, including from China's BYD and other brands.
“Of course, they benefit if Chinese EV is growing,” said Jan-Peter Kleinhans, an expert on microchips policy at German think tank Stiftung Neue Verantwortung (to be rebranded interface), in the latest edition of POLITICO's China Watcher newsletter.
That gives the European Union a bargaining chips as it seeks to fend off challenges from China.
Already, EU authorities are probing whether Chinese EV makers like BYD are unfairly undercutting European car makers through state subsidies — an investigation announced with great fanfare by EU Commission President Ursula von der Leyen in her annual State of the European Union address last year. That probe is “advancing,” trade chief Valdis Dombrovskis told POLITICO this month, hinting that Brussels could impose tariffs “before the summer break.”
But officials should stay alert for Chinese state attempts to overtake European microchips suppliers too, Kleinhans said.
“There’s a general trend of import substitution that they cannot stop. I think that train left the station," he said, referring to China's practice — echoed in Europe and the U.S. too — to boost domestic companies to reduce dependencies on foreign regions.