Key Points:
- The European Commission will soon introduce a new law requiring automakers to buy vital chips from at least two different suppliers.
- The upcoming “Chips Act 2” aims to protect major brands like Volkswagen and Stellantis from geopolitical trade wars.
- The policy shift follows the Nexperia crisis, which left European car factories with only a couple of months of chip stockpiles.
- Automakers must now factor political risks and supply chain resilience into their parts procurement, not just cost.
European carmakers will soon face strict new rules regarding where they buy their computer chips. The European Commission plans to present a draft law next month that would require automakers to source critical semiconductors from at least two suppliers. This aggressive move aims to build supply chain resilience and stop major brands from relying on a single, vulnerable provider.
The upcoming legislation, known as the Chips Act 2, aims to protect European giants like Volkswagen, Stellantis, and Renault from sudden economic shocks. Officials want to prevent these massive companies from developing excessive dependencies on single foreign suppliers, especially those based in China. The European Commission expects to formally present this package of legislative proposals on June 3 to boost Europe’s technological sovereignty.
Thomas Regnier, the Commission’s spokesperson for tech sovereignty, explained that the new law will reflect modern geopolitical realities and the current tech environment. Car manufacturers rely on semiconductors for almost every electrical system in a modern vehicle, from engine controls to basic interior lights. The automotive sector has already suffered several devastating chip shortages since the COVID-19 pandemic triggered a massive global supply crisis.
In response to the early-pandemic shortages, European leaders passed the first Chips Act. That initial law aimed to predict and manage supply crises in critical industries such as defense, banking, and energy. However, policymakers did not subject car manufacturers to the strictest rules of that original bill. At the time, the law only recommended that companies share supply data and take voluntary steps to prevent future shortages.
European officials now believe those voluntary recommendations failed to protect the market. The main catalyst for this sudden shift in thinking is Nexperia, a Dutch chipmaker. Chinese partially state-owned manufacturing giant Wingtech acquired Nexperia back in 2019. At the time, European regulators easily cleared the transaction because Nexperia mostly built basic, low-tech chips. However, the company quietly held a massive 10% of the global market share and supplied up to 40% of the European automotive chip market.
The danger of this setup became clear in December 2024. The United States placed Wingtech on its official sanctions list due to concerns over the military applications of its technology. US officials quickly extended these blacklisting rules to affiliated companies, including Nexperia. To prevent the company from transferring vital technology and assets straight to China, the Dutch government stepped in and seized temporary control of Nexperia.
This move provoked a fast and angry response from Beijing. The Chinese government retaliated by immediately halting all exports of Nexperia chips produced in Chinese factories. This sudden export ban cut off the lifeblood of European car manufacturing. Major European brands watched their inventories dry up, leaving them with only a couple of months of stockpiles. The nations eventually resolved the trade dispute, and China lifted its export bans in November after tensions cooled, but European car factories are still struggling to recover.
The terrifying Nexperia episode convinced policymakers in Brussels that they must force change. They realize that without strict laws, the car industry will keep hitting the same wall. By forcing automakers to source parts from multiple suppliers, EU officials aim to bolster Europe’s strategic autonomy and boost demand for European-made chips.
This supplier diversification will entail high economic costs for car companies. Many Chinese chip suppliers receive massive subsidies from their government, allowing them to undercut European competitors and dominate critical supply chains. Under the new law, carmakers can no longer just look for the lowest price. They must factor geopolitical risks directly into their business equations. For the European car industry, this tough lesson has finally become non-negotiable.
