European carmakers face EU pressure to diversify chip suppliers
European Carmakers Face EU Pressure to Diversify Chip Suppliers
EU’s New Mandate for Automotive Chip Sourcing
European carmakers face EU pressure to diversify – The European Commission is set to introduce a draft law next month that will require car manufacturers to source chips from at least two suppliers in specific scenarios. This proposal aims to enhance supply chain resilience by reducing the risk of overreliance on a single provider, particularly one based in China. The initiative is part of a broader effort to strengthen the EU’s technological sovereignty through revised semiconductor regulations, known as the Chips Act 2. Officials emphasize that the automotive sector, which has been hit hard by global supply chain disruptions, must now adopt binding measures to mitigate potential vulnerabilities.
The legislation, which will be included in a package of economic security proposals, marks a significant shift in the EU’s approach to chip dependency. Previously, the automotive industry was not subject to the strictest rules under the first version of the Chips Act. Now, EU policymakers believe that the time for voluntary recommendations has passed, and that the sector must take concrete steps to ensure supply chain stability. This change comes after a series of crises that exposed the fragility of reliance on a single supplier, especially in light of geopolitical tensions escalating between the EU and China.
Context of Supply Chain Vulnerabilities
Since the onset of the COVID-19 pandemic, the automotive industry has faced repeated supply chain challenges. The surge in demand for electronic components globally led to a severe chip shortage, which disrupted production lines and forced manufacturers to prioritize availability over cost. While the initial Chips Act was designed to address such risks across critical sectors, including energy and defense, carmakers were initially exempt from the most stringent obligations. These obligations required companies to share data and demonstrate proactive steps to prevent shortages, but the automotive sector was not held to the same standard.
That changed in early 2025 when the EU began rethinking its approach. The trigger for this shift was the acquisition of Nexperia, a Dutch semiconductor firm, by Wingtech, a Chinese state-backed manufacturer. Nexperia, which had a 10% share of the global chip market and up to 40% in Europe’s automotive industry, was initially seen as a low-risk player. However, the acquisition raised concerns about potential supply chain dependencies, especially after Wingtech was added to the US sanctions list in December 2024. The move was driven by fears that Chinese chips could be used in military applications, prompting the EU to take a more assertive stance.
Nexperia’s Acquisition Sparks Regulatory Shift
The Dutch government’s intervention in Nexperia’s situation played a pivotal role in shaping the EU’s new regulatory framework. When Wingtech’s acquisition of Nexperia was approved in 2019, it was assumed that the firm’s products, such as those used in car lights, posed minimal risk. But by 2024, the geopolitical landscape had shifted. Wingtech’s inclusion on the US sanctions list signaled a growing concern about the strategic role of Chinese firms in global technology markets. Nexperia, now under Chinese control, became a focal point for EU officials seeking to protect critical infrastructure from supply chain shocks.
The situation escalated in November 2024 when Beijing imposed an export ban on Nexperia chips manufactured in China. This action led to a temporary shortage in Europe’s automotive sector, leaving major manufacturers with only a few months of stockpiles. The crisis highlighted the dangers of concentrating supply chain risks in a single provider. In response, the EU is now pushing for a more diversified approach, mandating that carmakers not only source from multiple suppliers but also integrate risk assessments into their procurement strategies. This requirement is expected to be a cornerstone of the updated Chips Act 2.
Strategic Implications of the Legislation
EU officials argue that diversifying chip suppliers is essential for strategic autonomy, ensuring Europe is not overly dependent on a single technological power. The law’s goal is to create a buffer against disruptions, whether they stem from natural disasters, trade wars, or geopolitical conflicts. By forcing carmakers to evaluate supply chain risks, the EU aims to reduce the impact of future crises and support domestic production. “Resilience and technological sovereignty are crucial in today’s global landscape,” said Thomas Regnier, the Commission’s spokesperson for tech sovereignty. He added that the proposal would not impose additional burdens on companies, focusing instead on aligning procurement practices with current challenges.
The legislation also reflects a broader trend in the EU’s economic security agenda, which has increasingly prioritized decoupling from foreign vendors. Chinese chipmakers, supported by state subsidies, have long dominated global markets, offering lower prices and greater volume. This advantage has allowed them to control key chokepoints in the supply chain, a situation that the EU now seeks to counter. While diversification may increase costs for European automakers, officials believe the long-term benefits outweigh the short-term financial strain. The plan is to gradually shift demand toward European production, fostering a more self-sufficient semiconductor industry.
Industry’s Response and Future Outlook
European carmakers, including Volkswagen, Stellantis, and Renault, are now under pressure to adapt to these new rules. Although they have been proactive in addressing supply chain issues, the mandatory diversification requirements may complicate their operations. For instance, some companies have already faced challenges in finding alternative suppliers, particularly for specialized components. The EU’s proposal could force them to reconfigure sourcing strategies, potentially leading to increased collaboration with domestic or regional chipmakers.
The Nexperia episode has left a lasting impression on EU policymakers, reinforcing their belief that the automotive sector must learn from past mistakes. The case demonstrated how quickly supply chain dependencies can become problematic when geopolitical tensions intensify. By embedding risk assessment into procurement decisions, the legislation seeks to create a more robust framework for the industry. However, some analysts warn that the transition to a diversified supply chain could take years, requiring significant investment and coordination.
Despite the challenges, the EU remains committed to its vision of technological independence. The revised Chips Act 2 is seen as a critical step in this direction, with the potential to reshape the automotive industry’s reliance on global markets. For European carmakers, the lesson may finally be non-negotiable, as the consequences of a future crisis could be far more severe than the current shortages. The law’s success will depend on its ability to balance economic efficiency with strategic resilience, ensuring that the automotive sector remains competitive while safeguarding against global disruptions.
