The Latest: According to a recent statement from Prime Minister Pedro Sánchez, Spain plans to invest EUR11bn of public funds towards developing the country’s semiconductor industry. The project falls within the overall government’s strategy to redirect the EU’s recovery funds towards several key verticals that include electric vehicles, renewable energy and hydrogen, or agribusiness digitalisation.
Implications: The Strategic Projects for Economic Recovery and Transformation (PERTEs) are a series of public-private partnerships that the Spanish government defined under new legislation with the aim of channelling the EU’s Next Generation funds towards advancing the goals defined by the Recovery, Transformation and Resilience Plan. Of the EUR750bn that the EU approved, Spain will be investing the EUR140bn it received in the 2021-2026 period. As digitalisation is one of the key pillars to both Spain’s and the EU’s recovery plans, we expect that strengthening the regional semiconductor industry will unlock new opportunities.
At the same time, the EC recently approved the EU Chips Act, which expects to deliver public subsidies and other favourable mechanisms to incentivise the construction of EU-based fabs. The Spanish government has provided little detail about the final destination of the EUR11bn, though we expect it is likely to provide subsidies to major semiconductor fabs to set up new facilities in the country. Germany has recently made progress with regard to its semiconductor ambitions, with Intel committing EUR17bn to set up a new mega production plant in the country.
What’s Next: In lieu of official details, we expect new investment in semiconductors will be directed at the higher-end of the market, in line with the EU’s position towards the industry. Meanwhile, Spain had approved a series of PERTEs that we see as highly synergistic to the recently announced semiconductor plans.
For example, in July 2021 the government approved a project to deliver EUR24bn in public and private investment to expand the country’s manufacturing capabilities of electric and connected vehicles. With automakers moving towards level 3 automation in the medium to long-term, vehicles will increasingly require faster and more efficient chipsets to support their highly complex automation systems.
Most of the PERTEs that the government has so far approved will require a certain level of technological sovereignty, as they mostly focus on the digitalisation and sustainability of the economy. As we have previously indicated, the level of investment required to reach full sufficiency in the semiconductor supply chain is unmatched by EU-wide investment efforts, with more advanced markets, such as South Korea, dedicating over USD540bn in the next 10 years to expand its capabilities.
However, we believe that the EU’s ambitions - that is, to expand the region’s global market share in the semiconductor industry from 10% to 20% - are a step in the right direction, although unlikely to materialise. On balance, Spain, and overall the EU, will still require a mix of domestic capabilities and imports to sustain the needs of their industrial base, especially as demand for high-end chips will only grow as computing-intensive technologies such as AI and IoT expand.