Draghi Report: A wake-up call for the EU electronics manufacturing industry

Despite the European Chips Act, the European electronics sector still faces a sharp decline, potentially undermining Europe’s security, industrial resiliency, and global competitiveness.

Sanjay Huprikar, President Europe and South Asia Operations, IPC .

The Draghi report delivers a stark reality check on Europe’s semiconductor strategy. Without a robust industrial policy to level the playing field, the European industry, and the electronics manufacturing industry in particular, face a sharp decline. While the Chips Act has laid important groundwork, Draghi broadly calls for bolder, faster actions to strengthen Europe’s position in the global electronics manufacturing race. To this end, the report exposes persistent gaps in innovation, investment, and infrastructure that threaten to leave Europe trailing behind global leaders.  

The concern for European competitiveness in electronics is underscored by the ongoing and almost singular focus on the chip industry. Each new chip fab announcement, including this summer’s announcement of a new microchip manufacturing plant in Dresden, is welcomed by Europe’s policy establishment. All the deserved praise for this large-scale project funded under the European Chips Act, however, should not cloud the view on the overall outlook of the European electronics industry. In the same summer, we saw a wave of more muted announcements, including the unexpected and temporary interruption in operations of the Toulouse factory of PCB company CSI. The reality is that, even in the face of soaring global demand for electronics, Europe’s supply chain is vulnerable, impacting critical industries, and its share of electronics manufacturing has fallen significantly in the last two decades. That decline is set to continue if concerted action is not taken.    

Despite the adoption of the European Chips Act, a recent IPC report found the EU’s market share in critical electronics segments--including printed circuit boards (PCBs), electronic manufacturing services (EMS) and advanced packaging—will decline to 15 percent by 2035. In fact, to maintain its 2023 global market share of 16.7% in electronics systems, the EU must achieve an additional 16.8% growth beyond what is projected over the next 12 years. 

In July, my colleague, Alison James, highlighted how electronics manufacturing could be the Achilles’ heel of EU strategic autonomy at a time when electronics have never been more important. Electronics are integral to countless aspects of our daily lives, from the smartphones in our pockets to the cars we drive, the medical devices that safeguard our health, and the defence systems that protect us. Yet, Europe’s underinvestment and lack of cohesion in this sector is eroding its competitiveness, threatening critical industries, and jeopardising the continent’s green transition.  

Put simply, European electronics manufacturers are disadvantaged in the global marketplace. International competitors benefit from more relaxed regulatory regimes and more robust government subsidies that support stronger supply chains and enable lower prices. Many European firms, particularly in the PCB industry, lack the resources to keep pace with the advancements seen in Asia. These differences are compounded by coordination issues between member states, less integrated supply chains and sluggish commercialisation and ability to scale. 

The picture becomes particularly bleak when looking at projections for subsectors of the European electronics manufacturing industry, such as PCB production (1.7% global market share by 2035), advanced packaging (1.4%) and IC substrate production (0.7%) respectively. There is a growing imperative to level the playing field.  The declining global market share for European electronics gives credence to criticisms of the European Chips Act that it “lacks the strategic depth present in the approaches of the United States and Japan.” Now is the time for a more aggressive and broad-reaching approach, one informed by the European electronics manufacturing industry’s collective call for an “Electronics Manufacturing Strategy” under the 2024-2029 European Commission mandate. 

If left unaddressed, Europe risks losing its position as an innovation powerhouse and a leader in sustainable industrialisation. But it isn’t too late to turn this around. An Electronics Manufacturing Strategy for Europe would protect the region’s position as a hub for innovation and manufacturing, to address its strategic dependencies, build capacity and bolster its capabilities closer to home. It will not only require a harmonised regulatory landscape, training and retaining talent, or boosting investment - it will require all three, and more. Only then can the European electronics industry buck a long-standing trend of decline and bolster optimism around Europe’s competitiveness, resiliency and industrial strength.