Why can't high-end automotive chips in Italy do without China?
Expanding manufacturing capacity within Europe is seen as a way to reduce vulnerability to geopolitical shocks, rather than an attempt to withdraw from global trade.
In discussions about semiconductor sovereignty in Europe, Italy is rarely mentioned. When policymakers talk about strategic autonomy, they often refer to the flagship wafer fabrication plants in France, Germany or the Netherlands, or the key investment projects supported by the EU Chips Act. However, Italy is at the core of several of Europe's most vulnerable automotive and power electronics supply chains - but people often do not know exactly where its true dependencies lie.
This opacity is crucial. As export controls tighten, China's technological development in electric vehicles (EVs) and power electronics is rapid, and geopolitical risks are increasingly hard to ignore. Italy's strengths and weaknesses offer a revealing case study, allowing us to see that Europe may still be in a state of "ignorance" when confronted with the actual risks it faces.
Recent measures, such as the 1 billion euro financing plan provided by the European Investment Bank to STMicroelectronics, aim to strengthen the semiconductor industry foundation in Europe. However, exclusive interviews with officials from the European Investment Bank and an analysis by an Italian academic expert indicate that although these investments have addressed key structural issues, they have failed to address critical blind spots - especially in the deep links of the supply chain.
An ecosystem that is fragmented but globally closely connected
Compared with Germany or France, the automotive and electronics industry ecosystem in Italy is exceptionally fragmented. It consists of a few large industrial enterprises and a large number of highly specialized small and medium-sized enterprises that are deeply integrated into the global market.
"Although these companies are large in scale, they excel globally thanks to their flexibility and high degree of specialization." Professor Matteo Sonza Reorda from Politecnico di Torino told EE Times. This has long been their competitive advantage, but it also makes it harder to identify their risk exposure.
"Although these companies are large in scale, they excel globally thanks to their flexibility and high degree of specialization." Professor Matteo Sonza Reorda from Politecnico di Torino told EE Times. This has long been their competitive advantage, but it also makes it harder to identify their risk exposure.
The original equipment manufacturers (OEMs) in Italy are no longer purely Italian enterprises. For instance, Fiat is part of the Stellantis group. The equity of Iveco is held by Tata and Leonardo. On the surface, it seems to be a European-style supply chain, but in reality, there are often more upstream non-European dependencies hidden beneath. In the fields of power electronics, packaging, substrates, specialty chemicals and test equipment, the influence of Chinese suppliers is increasing day by day - sometimes Italian enterprises are even not fully aware of this.
"The entire automotive industry is highly interrelated and complex," said Sonza Reorda. "Even for the automotive companies themselves, tracing the true origin of a certain component can be a challenging task." The focus of public discussions often centers on the chips that are "designed in China" versus those designed in Europe or the United States. However, he believes that this way of discussing ignores the real risks at play.
He said: "The risks often lie not in the chip design, but in manufacturing, equipment and materials. These areas are typically where Chinese suppliers hold a dominant position, and it is difficult to predict the actions of suppliers other than the primary ones."
Many Italian automotive suppliers rely on global distributors or first-tier integrators, which makes it difficult to trace the dependencies upstream. Sometimes this even involves commercial sensitive issues. Therefore, although the European (supply chain) appears to be highly diversified on the surface, there is still the risk of a single point of failure.
This model echoes the concerns raised in other parts of Europe, such as the Nexperia case in the Netherlands. In that case, China's ownership of a seemingly insignificant semiconductor asset triggered a national security intervention. Sonza Reorda believes that similar risks may exist in Italy, especially among medium-sized enterprises that lack the resources to proactively mitigate these risks.
"Reducing risks comes at a cost," said Sonza Reorda. "Companies should be able to bear this additional expense. For strong and long-term-oriented enterprises, this is more readily accepted."
For many Italian small and medium-sized enterprises, their reliance on Chinese components is not driven by ideology but by economic factors. Chinese suppliers are typically faster, cheaper, and have a higher degree of vertical integration - especially in the field of power electronics related to electric vehicles. Attempting to break away from this reliance without government support could undermine the competitiveness of these enterprises.
This results in a structural imbalance. The companies most vulnerable to geopolitical shocks often have the least capacity to cope. Ironically, some of the most important semiconductor enterprises in the world, which are neither wafer fabrication plants nor chip designers, are located in Italy - and thus are easily overlooked.
Sonza Reorda pointed out that Spea and Technoprobe are typical examples. Both of these companies are global leaders in semiconductor testing and detection technologies, and their products are exported in large quantities to Asia, including China and South Korea. "These companies are crucial," he said, "(because) any equipment production requires testing."
Spea Company offers MEMS and power electronics testing systems, while Technoprobe Company specializes in probe cards, which are used to physically connect the testing equipment to the chips during the verification process. Although these companies hold significant strategic importance, they rarely feature in the European sovereignty debates, where the focus is often on semiconductor factories and eye-catching capital expenditure announcements. However, the chaotic situation affecting these "behind-the-scenes" participants will affect the entire value chain.
European Investment Bank & STMicroelectronics: Strengthening the Core Foundation of the European Chip Industry
In this context, the 1 billion euro financing plan provided by the European Investment Bank (EIB) to STMicroelectronics aims to consolidate the core European semiconductor industry, particularly in the areas of power electronics and automotive applications.
According to Romolo Isaia, the head of the department responsible for the operations of Italian and Maltese enterprises at the European Investment Bank, the theoretical basis is based on three core elements: the strategic importance of semiconductors to the European economy, the consistency with the EU's policy goals (such as the "Chip Act"), and the "systematic investment approach" he described - that is, supporting innovation, production, and downstream applications simultaneously, rather than individual isolated investments.
Unlike commercial loans, the financing provided by the European Investment Bank is linked to specific investment projects rather than working capital. Senior credit officer Saverio Rossetti, who participated in the design of the ST project framework, stated that the bank only provides financing for specific research and development and capital expenditure projects, and usually not more than 50% of the total project cost, in order to avoid competing with private investment.
ST's factories provide support for investments in Italy and France, including those in Catania, Aglart and Crolier. Among them, the Catania project is particularly significant. ST is currently building a complete silicon carbide wafer manufacturing line here, covering the entire process from raw silicon powder to front-end and back-end production.
Sonza Reorda said: "This gives STMicroelectronics complete independence in the production of its components", and added that this vertical integration "is very attractive from the perspective of European sovereignty".
From the perspective of the European Investment Bank, this project aims to address the long-standing imbalance between European design and manufacturing. The past semiconductor shortage has highlighted the extent to which Europe relies on centralized production in Asia.
Isaia said: "Europe has strong capabilities in research and development, but production is still concentrated in other regions, especially in Asia." Therefore, expanding the manufacturing capacity within Europe is regarded as a way to reduce the vulnerability to geopolitical shocks, rather than attempting to withdraw from global trade.
The ST investment undoubtedly strengthened Europe's position in the field of power electronics, especially in the area of electric vehicles. It supports high-skilled employment, research and development, and manufacturing capabilities, and monitors progress by covering specific key performance indicators (KPIs) such as employment, innovation, and output. Rossetti stated that these KPIs have been incorporated into the loan agreements of the European Investment Bank and will be continuously tracked.
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