Senate passes semiconductor industry bill with $2 billion for auto-grade chips

WASHINGTON — The U.S. Senate on Wednesday passed a bill that, in part, will provide billions of dollars to boost domestic semiconductor production — an action long-awaited by the auto industry as it continues to navigate a global shortage of microchips.

The bipartisan bill — known as the CHIPS and Science Act or “CHIPS-plus” — provides about $52 billion in government subsidies for U.S. semiconductor research, design and production, including $2 billion for “legacy chips” used by automakers and parts suppliers.

It also includes a 25 percent tax credit for investments in semiconductor manufacturing through 2026 and invests billions of dollars in science and technology innovation to strengthen economic growth, job creation and national security.

The legislation, approved 64-33 with a bipartisan vote, now heads to the U.S. House of Representatives, where it is expected to pass as early as this week.

The bill is a trimmed-down version of legislation previously passed by the Senate and House to address the global semiconductor shortage and other supply chain disruptions. That legislation also sought to improve U.S. competitiveness with countries such as China, Taiwan and South Korea, as well as the European Union, which are all investing in semiconductor manufacturing.

Funding for the CHIPS — or Creating Helpful Incentives to Produce Semiconductors for America — Act was included in the U.S. Innovation and Competition Act that was passed by the Senate in June 2021 and in the House’s version that was passed in February.

Members from both chambers had been working in recent months to iron out differences between the two versions and pass a bill before lawmakers leave for August recess but have yet to agree on a final, broader economic competitiveness package.

The legislation passed Wednesday has been slammed by some critics, including Sen. Bernie Sanders, a Vermont Independent, who has called it a “blank check to the microchip industry.”

Republican Sen. Pat Toomey, of Pennsylvania, last week referred to the bill as a “corporate welfare handout” to “an extremely sophisticated, profitable industry in the U.S. — semiconductor manufacturing.”

The Alliance for Automotive Innovation, which represents most major automakers and some suppliers in the U.S., commended the Senate bill’s passage and urged the House to follow suit.

“Other countries are taking aggressive steps to get ahead of the United States on semiconductor production. By investing in American-made chips today, our country will be in greater control of its own destiny tomorrow — not to mention less reliant on foreign suppliers and governments,” alliance CEO John Bozzella said in a statement.

The auto industry has repeatedly called for government intervention to address the persistent global semiconductor shortage that began in 2020. The pandemic-induced supply disruption has forced automakers to cut vehicle production globally and eliminate certain vehicle features.

In June, major automakers and industry suppliers again urged Congress to quickly pass bipartisan competitiveness legislation, including the CHIPS Act.

“There is not a single supply-chain shortage with a greater impact on the U.S. economy than the shortage of automotive-grade semiconductors,” the American Automotive Policy Council, which represents Ford Motor Co., General Motors and Stellantis, said in a statement Monday.

The lack of chips prevented 1.5 million vehicles from being produced in the U.S. last year, according to the alliance, leaving dealerships with lower-than-normal levels of new-vehicle inventory.

Sens. Gary Peters and Debbie Stabenow, both Michigan Democrats, worked to secure the $2 billion incentive fund dedicated to support legacy chip production for critical manufacturing sectors, including the auto industry.

“Dedicated funds to support the domestic production of semiconductor technologies will give the automotive industry — and specifically the automotive supply chain — a greater competitive advantage around the globe,” Julie Fream, CEO of the Original Equipment Suppliers Association, told reporters Tuesday during a virtual press briefing.

But building a semiconductor fabrication plant can take “at least two years,” she noted, so it will take time for supply woes to fully ease.

“This problem only gets bigger as time goes on,” Peters said in a response to a question from Automotive News.

As the auto industry transitions to electric vehicles and adds more automated features and advanced safety technologies, more chips will be needed, he added.

“The demand for chips is increasing every single year, dramatically,” Peters said. “We have to get in front of this problem. … We have to start building these facilities now.”