Spain finds few takers for $12b in microchip subsidies

The Spanish government’s plan to pour more than 12 billion euros ($12.3 billion) into building a domestic semiconductor industry from scratch has run up against a major problem: Chipmakers ready to take on the challenge are few and far between.

Financed by European Union cash allocated to offset the economic impact of the Covid-19 pandemic, Spain’s chips push is being hampered by stiff competition from other EU countries to win over major investors, according to people familiar with the situation.

The main challenge has been to attract companies willing to commit to long-term investments that can run into billions of euros, said the people, who asked not to be identified discussing confidential information. Firms have opted instead for nations like Germany that have a semiconductor ecosystem with suppliers and talent already established.

A shortage of chips for automotive applications has severely constrained global production, with wait times for popular models of more than a year or more. Analysts estimate that the production deficit in the past 18 months is several million vehicles.

Spain’s ambitious effort is meant to contribute to achieving the EU’s goal of producing a fifth of the world’s microchips by 2030, up from about 10 percent in 2020. Enshrined in the bloc’s so-called Chips Act, the plan allows member nations to provide state aid to chip producers with projects designated “first of a kind” on the continent.

Manufacturers have shown interest in the government’s chips drive since it was unveiled two months ago but they need time to make investment decisions, according to an emailed statement from Spanish Prime Minister Pedro Sanchez’s office in response to Bloomberg questions. “We are fully confident that these conversations will soon bear fruit in relevant announcements,” the statement read.

After facing significant supply-chain disruption during the pandemic, the EU and the U.S. are racing to increase chip production, with governments keen to reduce their dependence on countries like Taiwan and South Korea.

The U.S. Chips Act passed both houses of Congress last week, including $52 billion in grants and incentives for domestic semiconductor manufacturing, and China is also investing heavily to catch up.

The EU’s chips plan has gained momentum in nations with existing semiconductor industries, putting them in competition with one another.

Spain has tried to lure Taiwan Semiconductor Manufacturing, but the company is expected to opt for Germany, where there is already a large chip ecosystem in the eastern state of Saxony. TSMC, the world’s premier chip foundry based in Taiwan, has been talking to the German government for over a year about setting up a factory, but a decision is unlikely anytime soon.

The former East Germany also got a huge boost back in March when Intel announced it would invest 17 billion euros to build a cutting-edge production site in Magdeburg.

Global Foundries and STMicroelectronics last month unveiled a 5.7 billion-euro project to make energy-efficient chips in France, while Samsung Electronics, another leader in semiconductors, floated the idea of a European expansion years ago but it has yet to materialize.

Spain’s Sanchez, a trained economist, sees the government’s chips project as a way to boost the country’s industrial base, which has shrunk since the turn of the century due to tougher competition from abroad.

The investment is also important for supplying the Spanish auto sector, which is Europe’s second-largest and accounts for about 10 percent of gross domestic product.

Some of the money will go toward research projects via the EU’s microelectronics IPCEI, or important projects of common European interest. These allow governments to channel state aid to smaller research projects.

Spain will also likely get EU funds to house a pilot production line from Imec, a Belgium-based research hub, according to a person familiar with the plan.