Chips Act 2.0 Puts Demand at Center of Europe’s Semiconductor Strategy

The European Commission released its Chips Act 2.0 proposal on June 3, shifting the focus from manufacturing capacity to demand-driven semiconductor policy. The new strategy aims to strengthen Europe's chip design capabilities, support scale-ups, and link production to downstream industries, addressing weaknesses in AI chips and reducing dependence on U.S.-designed and Asian-manufactured semiconductors. A senior Commission official said the proposal seeks to create a virtuous cycle where local demand reinforces local supply, replicating demand forums already proven in the automotive sector.

Released on June 3rd, the European Commission’s Chips Act 2.0 proposal marks a clear shift in emphasis. The first Chips Act focused heavily on manufacturing capacity. The new proposal broadens the policy around demand, chip design, scale-ups, strategic projects, supply-chain visibility, and links to downstream industries. A senior Commission official told EE Times that Europe’s Chips Act 2.0 comes in a different environment, pointing to two forces behind the new proposal: geopolitics and AI. Europe remains weak in AI chips, with only a few startups designing AI silicon and a continued dependence on advanced semiconductors designed in the U.S. and manufactured in Asia. “The first Chips Act was very much supply driven,” the official said. “With the Chips Act 2.0 we want to be much more demand driven.” That may be the central sentence in the proposal. The EU Chips Act 2.0 is not simply a second semiconductor subsidy plan. It’s Brussels’ attempt to move from emergency capacity building to a fuller industrial strategy in which European chip production, chip design, and end-user demand reinforce each other. View All https://www.eetimes.com/category/sponsored-content/ Demand becomes the test One of the underlying themes in the proposal is that local demand can strengthen local supply, align production capacity with the needs of key industries, and reduce the risk that new European capacity is underused. The senior official said the Commission wants to replicate a process that has already been proven in the automotive sector, creating demand forums that bring users and semiconductor suppliers together to discuss future technology needs. “This technology roadmap can also help identify technical gaps,” the official said. Demand accelerators could then help address those gaps through EU and member-state financing, potentially through competitive calls for proposals. Grand challenges would focus on integration. The official cited autonomous drones and smart glasses as examples where Europe has many components but lacks enough end-to-end demonstrators. Edith Euan Diaz, director of deep tech public funding at Axelera AI, told EE Times that the biggest gap in Europe’s semiconductor ecosystem is local demand. “The global market for semiconductors is huge, but European demand for European technology is not a focus,” she said. Europe’s persistent instinct, she added, has been to treat supply-side investment as the main lever: “fund the fabs, fund the pilot lines, fund the research.” But competitive semiconductor industries are built when customers create the pull that justifies capital investment. “The virtuous cycle starts on the demand side,” Euan said. For Eindhoven-based Axelera, demand-side policy should mean more than discussion forums. Euan said Europe needs preferential treatment of domestic AI silicon in public procurement for sovereign cloud, defense applications, digital twins, smart grids, and national AI initiatives. She also called for forward volume commitments from large OEMs and risk-sharing mechanisms that compensate first movers for the cost of qualifying new domestic silicon. “Large European customers are the most important and most underutilized lever in European semiconductor policy,” Euan said. The scale-up desert The EU Chips Act 2.0 also tries to address another problem: Europe’s difficulty scaling semiconductor companies once they move beyond early-stage support. The proposal acknowledges that limited late-stage and institutional capital restricts European semiconductor firms, weakens European value capture, and can incentivize scale-ups to relocate or sell to non-EU firms. It also says the EIC Accelerator portion of the Chips Fund was used up in its first two years and proved insufficient. According to Euan, in 2026, European semiconductor startups have more options for their first €1 million ~$1.16 million to €30 million ~$34.8 million than they did five years ago. “But then comes the desert,” she said. Once a company needs to raise more than roughly €30 million ~$34.8 million , Europe’s fragmentation becomes visible. The ticket sizes needed for a production transition—€30 million ~$34.8 million to €500 million ~$580.6 million —are usually not available from European sources, she said. Global capital is available, but it may come with conditions: relocation, manufacturing relationship transfers or go-to-market pivots toward the investor’s home market. “The company does not fail,” Euan said. “It migrates.” The Commission official said the EU is not planning to copy the U.S. approach of taking direct equity stakes in companies such as Intel. Instead, he pointed to the European Innovation Council, STEP, and public procurement of innovation. For AI chips, he said, public procurement could create a validation environment. A public administration, for example, could buy a few racks in a data center, giving European AI-chip startups a place to test their chips before going to commercial customers. “Europe needs to shift its policy instinct from funding companies to buying from them,” Euan said. From pilot lines to production The proposal also recognizes Europe’s “lab-to-fab” problem—strong research and pilot-line infrastructure, but weak conversion into industrial output. The Commission official said Chips Act 1.0 was “extremely successful” in establishing five state-of-the-art pilot lines, which he described as research infrastructures envied globally. But he also acknowledged the lab-to-fab gap. Under Chips Act 2.0, the Commission does not intend to launch new large pilot lines in the short to medium term. Instead, it wants to map industry needs to semiconductor technologies https://www.embedded.com/behind-the-magic-of-materials-intelligence-the-foundation-of-most-every-semiconductor/ that can be developed through existing pilot lines and transferred to industry. For Euan, the problem is not whether pilot lines are useful. They are. The issue is what happens after small-batch validation. Moving from a validated pilot flow to a fully qualified production flow at commercial foundry volumes requires a major engineering investment that often falls on the chip company. “The gap between the two is where many European companies stall,” Euan said. She identified advanced packaging as the most significant near-term structural gap, as chiplets and heterogeneous integration become increasingly important for AI inference. Testing is another bottleneck, especially for AI-grade advanced logic at production volumes. Chips Act 2.0 addresses these gaps by broadening first-of-a-kind and strategic-project support across more of the value chain, including manufacturing-centered chip design, equipment, materials, PCBs, advanced packaging, and assembly. The proposal also identifies a high-priority strategic project that would combine leading-edge node manufacturing with chiplet integration and advanced 3D packaging, though pilot production is not envisaged before 2030. That timeline points to one of the proposal’s tensions. It recognizes the bottlenecks facing AI-chip scale-ups, but some of the infrastructure needed to close those gaps may arrive too slowly for companies already competing in global markets. No blank check yet For all its ambition, the EU Chips Act 2.0 does not attach a large new headline funding number to the semiconductor strategy. The proposal says setting up and operating a business-to-business semiconductor supply chain platform will require operational expenditure of about €70 million ~$81.2 million . But broader budgets for Chips for Europe Initiative 2.0 and strategic projects in the 2028–2034 multi-annual financial framework MFF can only be requested later. The senior official confirmed that the proposal does not earmark money. Chips Act 2.0, he said, is designed to make the regulation ready for the next MFF and future programs such as the European Competitiveness Fund. But the size of the budget will depend on negotiations. Some strategic projects could require “several tens of billions of euros,” the official said. Commission funding, or even Commission plus member-state funding, will not be enough. The goal is to combine EU, national, industry and private equity financing. That makes the EU Chips Act 2.0 financially ambitious in architecture but not yet in budgetary commitment. See also: Europe’s Chips Act Stumbles Over Its Own Rigidity https://www.eetimes.com/europes-chips-act-stumbles-over-its-own-rigidity/ What Policymakers Must Fix in Europe’s Chips Act 2.0 https://www.eetimes.com/what-policymakers-must-fix-in-europes-chips-act-2-0/ Chiplets, Ecosystems, and Europe’s Post-Fab Semiconductor Strategy https://www.eetimes.com/chiplets-ecosystems-and-europes-post-fab-semiconductor-strategy/