China hints at exception to the Nexperia supply ban: When a chip manufacturer becomes a hostage in geopolitical power games
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Published on: November 1, 2025 / Updated on: November 1, 2025 – Author: Konrad Wolfenstein
China hints at exception to the Nexperia supply ban: When a chip manufacturer becomes a hostage in geopolitical power games – Image: Xpert.Digital
Years of penny-pinching in the wrong places? Why the just-in-time strategy is now turning into a nightmare.
The semiconductor crisis reveals the structural vulnerability of the German automotive industry in global technology competition.
The news came as a surprise to many at the end of October 2025: China hinted at exceptions to the Nexperia supply halt, after weeks of uncertainty over the supply of critical semiconductor chips had gripped the European automotive industry. Behind this seemingly technical announcement lies a multifaceted economic crisis that not only exposes the structural weaknesses of global supply chains but also raises fundamental questions about the future of German industry. The Nexperia case is developing into a textbook example of how geopolitical tensions, technological dependencies, and corporate strategies can collide in a globalized economy – with potentially devastating consequences for one of Europe's most important industrial sectors.
The anatomy of a predictable crisis
To understand the economic dimensions of the Nexperia crisis, one must first grasp the company's role in the global semiconductor value chain. Nexperia is no ordinary chip manufacturer. Based in Nijmegen, Netherlands, the company is among the world's largest producers of so-called discrete semiconductors and legacy chips. These components—diodes, transistors, logic devices—may be technologically less spectacular than the cutting-edge processors for artificial intelligence or smartphones, but they form the backbone of virtually every electronic control system in modern vehicles.
The importance of these seemingly insignificant components can hardly be overstated. An average modern car contains several hundred, sometimes up to five hundred, Nexperia components. They regulate voltages, amplify signals, control LED indicator lights, coordinate airbag systems, and ensure that when the driver activates the hazard lights, all the lights illuminate in the intended sequence. Nexperia is estimated to control approximately forty percent of the global market for such standard semiconductors in the automotive industry. This market position makes the company an indispensable link in the supply chains of virtually all automotive manufacturers worldwide.
The company's origins trace back to the Dutch Philips Group, from which its semiconductor division was later spun off as NXP Semiconductors. In 2016, Chinese financial investors sold NXP's standard semiconductor division for $2.75 billion. Since 2017, the company has operated independently as Nexperia. The decisive turning point came in 2018 when the Chinese technology group Wingtech Technology acquired a majority stake in Nexperia for $3.6 billion. Wingtech, which also manufactures smartphone components for Huawei and Xiaomi, thus gained access to the lucrative automotive market and European semiconductor technology.
This acquisition could have been critically examined even then. Instead, the US Committee on Foreign Investment approved the transaction despite growing geopolitical tensions. It wasn't until later, in December 2024, that Wingtech landed on the US government's Entity List – a blacklist of companies accused of violating the national security interests of the United States. The accusation: Wingtech was systematically attempting to acquire technologies critical to the defense industry of the US and its allies.
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The domino effect of state intervention
The immediate trigger for the current crisis was the Dutch government's decision to take control of Nexperia on September 30, 2025. This move, which only became public on October 12, was made invoking the Cold War-era Commodity Availability Act – an instrument that had never been used before. The justification given was that there were acute indications of serious deficiencies in corporate governance, posing a threat to the continuity and protection of important technological know-how on Dutch and European soil.
Behind the diplomatic language lay a dramatic scenario. Reports indicated that Zhang Xuezheng, then CEO of Nexperia, had systematically begun transferring intellectual property and production capacity to China. Chip designs and machine settings from the Manchester plant had already been moved to China. Plans included laying off 40 percent of the European workforce, closing a research and development facility in Munich, and transferring equipment from the Hamburg production plant. The Dutch judiciary removed Zhang from his position and froze all company shares – a drastic measure that, according to the Ministry of Economic Affairs, was only permissible with clear evidence.
The reaction from Beijing was swift. The Chinese Ministry of Commerce immediately imposed an export ban on Nexperia products from its Chinese factories. This move hit the European automotive industry hard, as Nexperia's production model is based on global division of labor: The wafers – the thin silicon discs from which the chips are made – are produced in Europe, particularly in Hamburg and Manchester. However, approximately 70 percent of the final processing, i.e., cutting, packaging, and testing the chips, takes place in China, specifically at the plant in Dongguan in the southern Chinese province of Guangdong. The remaining 30 percent is manufactured in the Philippines and Malaysia.
The Chinese export ban caused this carefully calibrated supply chain to collapse within days. Wafers produced in Europe could no longer be sent to China for further processing. At the same time, no more finished chips arrived in Europe from China. The global output of Nexperia semiconductors plummeted by an estimated 70 percent. Warehouses at wholesalers and distributors emptied within a few days. Semiconductor brokers began selling the remaining chips at exorbitant prices – in some cases, a hundred times the original price, which is normally just a few cents per component.
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The structural Achilles heel of the automotive industry
The gravity of the situation only becomes clear when one considers the specific production structures of the automotive industry. For decades, the sector has relied on the principle of just-in-time production – a concept originally developed by Toyota to minimize storage costs and use capital more efficiently. In this system, components and materials are delivered only when they are immediately needed for manufacturing. A modern vehicle contains approximately 40,000 individual parts, and the coordinated delivery of all these components at the right moment is considered a logistical masterpiece.
This efficiency, however, comes at a price: extremely low inventory levels and maximum dependence on the smooth functioning of supply chains. If a critical component is missing, the entire production line grinds to a halt. This was precisely the scenario that threatened to unfold in October 2025. Bosch, the world's largest automotive supplier, is considered particularly resilient and well-organized within the industry. All the more alarming, then, was the news that Bosch, of all companies, had registered more than a thousand employees at its Salzgitter plant for short-time work. Chip experts described Bosch as a seismograph for the industry: if even this corporation could no longer obtain Nexperia chips, it demonstrated that the supply chain was indeed on the verge of collapse.
Other suppliers, such as ZF Friedrichshafen, Continental, and Mahle, also established task forces to examine alternative procurement options. The automakers themselves—Volkswagen, BMW, and Mercedes-Benz—initially attempted to downplay the situation. Production was continuing as planned, according to official statements. However, Volkswagen's CFO, Arno Antlitz, succinctly summarized the precarious situation: they were securing production day by day and week by week. Volkswagen was experiencing shortages of approximately 2,000 different semiconductors and electronic components. Mercedes-Benz stated that it had secured short-term supplies—without defining what "short-term" meant. BMW was monitoring the situation closely.
The cautious wording masked the gravity of the situation. Chip experts warned that without a political solution and a resumption of Chinese deliveries, the first production lines at Volkswagen would grind to a halt by mid-November. A purchasing manager at an automotive supplier told the Handelsblatt newspaper that the situation was reminiscent of the Fukushima disaster in 2011, when global supply chains collapsed overnight. Then, as now, warehouses were emptied within days. His grim prediction: If there is no political solution, the supply chain will break down completely in November.
The economic costs of dependency
The Nexperia crisis exposes the structural costs of a production strategy that prioritizes efficiency over resilience. Following the chip crisis during the COVID-19 pandemic of 2020-2022, the automotive industry had actually intended to rethink its approach. At that time, lockdowns in Asia, factory closures, and a surge in demand for electronics led to massive semiconductor shortages. Automotive plants were forced to temporarily halt production. The German Association of the Automotive Industry (VDA) subsequently emphasized that the sector had learned from its mistakes and would make its supply chains more robust. Several measures were implemented: increased inventory, a shift from just-in-time to just-in-case production, and the expansion of supplier networks.
However, structural changes largely failed to materialize. Toyota provides one example: The Japanese corporation was the only one that had already begun building up larger inventories in the semiconductor sector and entering into long-term contracts with chip manufacturers before the pandemic. This required additional capital and ran counter to the logic of lean production – but when the chip crisis hit in 2020, Toyota was able to produce for longer than its competitors. Most other manufacturers and suppliers shied away from the additional costs of such precautionary measures. After the pandemic subsided, many reverted to their old patterns.
The consequences are now becoming apparent. Every day of production downtime causes millions in losses for automakers. Added to this are the indirect costs: contractually agreed delivery dates cannot be met, customers switch to competitors, and market share is lost. Suppliers have to implement short-time work or even lay off staff. The economic costs multiply across the entire value chain. In Germany, approximately 3.2 million jobs depend directly or indirectly on the automotive industry. A prolonged production interruption would not only affect the corporations but also destabilize entire regions.
The impact is particularly severe in regions heavily reliant on the automotive industry. Cities like Salzgitter, where fourteen percent of all jobs depend on combustion engines, and the Saarpfalz district are already under enormous pressure due to the transition to electromobility. An additional chip crisis is exacerbating the already tense situation. The German Association of the Automotive Industry (VDA) explicitly warned that the situation could lead to significant production restrictions or even production stoppages in the near future if the disruptions with the Nexperia chips are not resolved promptly.
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Geopolitics as a business risk
The Nexperia crisis is inextricably linked to the global technology competition between the United States and China. This conflict has intensified considerably in recent years, evolving from trade tariffs into a comprehensive systemic rivalry. Semiconductors are at the heart of this dispute because they form the basis of virtually all modern technologies – from artificial intelligence and military weapons systems to telecommunications networks.
The US has systematically attempted to restrict China's access to cutting-edge semiconductor technology. Export controls prohibit the sale of advanced chip manufacturing equipment to China. Companies like Nvidia face restrictions on exporting their most powerful AI accelerators to China. The Dutch company ASML, which manufactures the world's only machines for producing advanced chips using extreme ultraviolet light, is prohibited from supplying them to China. These restrictions aim to slow China's technological rise and secure US military and technological superiority.
China is responding to this strategy with a two-pronged approach: on the one hand, massive investments in building an independent semiconductor industry, and on the other, targeted counter-sanctions in areas where China holds dominance. These include rare earth elements, of which China controls over 90 percent of global production, as well as certain segments of semiconductor manufacturing. Legacy chips, such as those produced by Nexperia, are one such segment. China produces about a third of all legacy semiconductors worldwide and has announced plans to massively increase its investments in this area. A state-backed investment fund of 40 billion dollars is intended to further strengthen domestic production.
The Nexperia case clearly illustrates how European companies are caught in the crossfire of this conflict. The Dutch government maintains that its decision is not directed against China, but serves solely to protect national security and safeguard European technological expertise. However, court documents prove that the US government exerted massive pressure on the Netherlands. Washington demanded the measure to prevent further semiconductor technology from flowing to China. The Netherlands complied with this pressure – with the consequence that China immediately responded by imposing an export ban.
This dynamic presents the European economy with a fundamental dilemma. Europe is dependent on both US technology and Chinese production capacities and raw materials. Unlike the US, Europe cannot simply decouple from China. China's importance as a sales market is too great, the interconnections too close. For the German automotive industry, China is by far the most important single market. Volkswagen, BMW, and Mercedes-Benz generate substantial portions of their profits there. A complete decoupling would mean massive losses. At the same time, Europe cannot afford to damage transatlantic relations or be perceived as an unreliable partner in the Western alliance.
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Resilience instead of efficiency: This is how Europe needs to rethink its supply chains.
The strategic failures of politics
The Nexperia crisis raises the question of why Europe is so vulnerable. A key reason lies in the fragmentation and strategic indecisiveness of European industrial policy. While the US and China are investing hundreds of billions of dollars in their semiconductor industries and pursuing clearly defined strategic goals, Europe is lagging behind. The European Chips Act, which came into force in 2023, does mobilize €43 billion in public and private investment, but experts consider the program insufficient.
The stated goal of the Chips Act – to achieve a 20 percent global market share by 2030 – is considered by many to be unrealistic and too vague. A 2025 report by the European Court of Auditors criticized the target for failing to clearly define priorities regarding where and why Europe should be a leader in the semiconductor value chain. The Semicon Coalition, a coalition of stakeholders from all 27 EU member states, is calling for a revision of the Chips Act with more precise strategic objectives: prosperity through a competitive European semiconductor ecosystem, indispensability through technological leadership at critical control points in the global value chain, and resilience through a reliable supply of trustworthy semiconductors.
The problem is not solely financial. The US is providing $53 billion in direct subsidies through the CHIPS Act, plus $75 billion in loans and tax breaks. Experts estimate that China is investing considerably more. But the real challenge lies in coordination. Europe is not a unified economic area, but rather a union of 27 states with often conflicting interests. Germany, heavily reliant on the automotive industry, has different priorities than, for example, Malta or Estonia. This fragmentation makes a coherent and swift industrial policy response difficult.
In October 2025, the German government adopted a microelectronics strategy intended to strengthen the German microelectronics ecosystem, reduce dependencies, and lay the foundation for technological sovereignty. However, such strategy papers primarily demonstrate one thing: that the problem has been recognized. Implementation takes years, if not decades. New chip factories—so-called fabs—require investments in the billions and construction times of several years. While Intel announced the construction of a gigafactory in Magdeburg, it will be several years before it becomes operational. And even then, Europe will not become independent of Asian suppliers overnight.
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The fragility of diversification efforts
A key concept in the current debate is diversification. Companies are expected to broaden their supply chains, reduce their dependence on individual suppliers or regions, and increase their warehousing. A survey by the German Chambers of Industry and Commerce shows that many German companies are indeed expanding their supplier networks and pursuing "China Plus One" strategies – that is, establishing additional locations outside of China. However, the same survey also reveals that 85 percent of companies face significant challenges in diversifying.
The biggest challenge is finding suitable alternative suppliers. With highly specialized components like semiconductors, a quick switch is often impossible. While Nexperia chips aren't technologically complex, they are frequently very specifically tailored to certain applications. A replacement part needs to be qualified – a process that takes months, sometimes quarters. Tests have to be conducted, certifications obtained, and production processes adapted. This is of no help in an acute crisis.
Then there are the costs. Diversification means higher operating expenses: multiple suppliers must be coordinated, quality controls must be carried out for each one, and volume discounts are lost. Many companies report significantly increased costs due to diversification. Especially at a time when the German automotive industry is already under pressure – due to the transformation to electromobility, increasing competition from China, and declining demand in key markets – additional cost burdens are difficult to bear.
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China as a systemic competitor and indispensable partner
The Nexperia crisis exemplifies the central dilemma of European, and especially German, economic policy towards China. On the one hand, China is increasingly perceived as a systemic competitor whose government is prepared to use economic dependencies as a political tool. The Chinese export ban on Nexperia chips is a textbook example of economic statecraft – the instrumentalization of economic interdependencies to achieve political goals. The message to the Netherlands and Europe is unmistakable: If you act against our interests, you will pay a heavy economic price.
On the other hand, China is indispensable for the European economy, not only as a sales market but also as a production location and supplier. The German automotive industry has massively expanded its presence in China over decades. Volkswagen operates numerous plants there and generates a significant portion of its revenue in the Chinese market. BMW and Mercedes-Benz are similarly engaged. Decoupling from China would mean losses in the billions for these companies and could jeopardize their global competitiveness.
This duality of China as both a threat and an opportunity leads to a policy of de-risking rather than de-coupling. While the US, under President Biden and later under Trump, pursued a tougher line and aimed for extensive decoupling, Europe followed a more moderate approach. Dependencies are to be reduced, but not completely eliminated. The problem: De-risking is easier said than done. In critical areas such as rare earths or certain semiconductor segments, China is so dominant that short-term alternatives do not exist.
In the Nexperia case, the Chinese government reacted remarkably tactically. While initially imposing an export ban and sharply criticizing the Netherlands, the Ministry of Trade indicated at the end of October that exceptions were possible. It stated that it would fully consider the situation of the affected companies and approve exports, provided the relevant conditions were met. Details of these conditions were deliberately omitted – a classic tactic to maintain maximum flexibility and sustain pressure.
These hints were enough to bring about a certain easing of tensions. The automotive industry breathed a sigh of relief in the short term. But the fundamental problem remains unresolved. China has demonstrated its ability to disrupt critical supply chains at any time. This show of force will not be forgotten. At the same time, Europe has shown its willingness to act against Chinese interests to a limited extent – but only under massive pressure from the US and at considerable economic cost.
Structural transformation as an overarching crisis
The chip crisis is hitting the German automotive industry at a time when it is already facing the biggest transformation in its history. The transition from combustion engines to electromobility, the integration of increasingly complex software, the development of autonomous driving systems, stricter ESG requirements, rising energy and raw material prices, and a shortage of skilled workers – all these factors are simultaneously putting pressure on the industry. Added to this is the growing competition from China, where companies like BYD, NIO, and XPeng are pushing into the European market with technologically advanced and attractively priced electric vehicles.
Studies by the German Economic Institute show that up to 3.2 million jobs in Germany depend directly or indirectly on the automotive industry. Thirty-six regions are particularly threatened by the phase-out of internal combustion engines. Employment related to combustion engines has declined by around eleven percent since 2021. Manufacturers such as Bosch, ZF Friedrichshafen, Continental, Schaeffler, and Mahle have cut tens of thousands of jobs or announced plans to do so in recent years.
In this context, the Nexperia crisis acts as an additional shock to an already weakened system. Companies that must invest heavily in electrification, while simultaneously struggling with declining demand and adjusting cost structures, can hardly afford additional production losses due to semiconductor shortages. The crisis reveals that the industry is structurally too vulnerable to successfully manage the necessary transformation when external shocks destabilize supply chains.
Lessons for a more resilient future
The Nexperia crisis should be seen as a wake-up call. Several lessons can be learned. First, just-in-time production in its extreme form is too risky in a geopolitically unstable world. A certain degree of redundancy, higher inventory levels of critical components, and supplier diversification are not luxuries, but economic necessities. The short-term cost advantages of lean production are outweighed by the risks of catastrophic disruptions.
Secondly, strategic autonomy in critical technologies is essential. Europe cannot afford to be entirely dependent on non-European players for semiconductors, rare earths, battery technologies, or other key technologies. Building its own production capacity is expensive and time-consuming, but unavoidable. The European Chips Act is a start, but it needs to be significantly more ambitious.
Thirdly, geopolitical risks must be systematically integrated into business decisions. For a long time, such considerations were considered secondary to cost optimization and efficiency. Those days are over. Companies need robust risk management systems that address not only market and financial risks, but also geopolitical scenarios.
Fourth: The fragmentation of European industrial policy must be overcome. Europe can only compete with the US and China if it acts as a unified economic area. This requires political will, joint investments, and a willingness to set aside national particular interests in favor of comprehensive European strategies.
Fifth: The balance between economic integration and strategic independence must be readjusted. Complete decoupling is neither possible nor desirable, but one-sided dependencies must be reduced. This applies to relations with China as well as to dependence on US technology.
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Structural uncertainty as the new normal
Signals from China that it is considering exceptions to the Nexperia supply ban offer short-term relief, but do not solve the structural problem. The Nexperia crisis will not be the last of its kind. Geopolitical tensions between the US and China are more likely to increase than decrease. Other technology sectors—artificial intelligence, quantum computing, biotechnology—will become arenas of strategic rivalry. European companies will repeatedly find themselves caught in the crossfire.
For the German automotive industry, this means a fundamental strategic realignment. The sector must simultaneously manage several transformations: technologically towards electromobility and digital services, structurally towards more resilient supply chains, and geopolitically towards greater independence. This threefold transformation requires massive investments, political support, and above all, time – a scarce resource given the urgency of the problems.
The Nexperia crisis also demonstrates that the discussion about industrial policy must extend beyond mere subsidy programs. It concerns fundamental questions of economic architecture: How do we organize value chains in a world where efficiency can no longer be the sole objective? How much strategic autonomy do we need, and what costs are we willing to bear for it? How do we shape relationships with countries that are simultaneously partners and systemic competitors?
These questions cannot be answered with technocratic solutions. They require political decisions that weigh values, interests, and priorities. The Nexperia crisis has shown that the illusion of a purely economically optimized, apolitical globalization is definitively over. Economics and geopolitics are inextricably intertwined. For German industry, which has profited for decades from open markets and the global division of labor, this realization represents a fundamental turning point.
The coming years will show whether Europe and Germany are capable of mastering these challenges. The Nexperia crisis should be understood as a warning: the vulnerability is real, the consequences potentially devastating. Only with strategic foresight, coordinated action, and the willingness to sacrifice short-term efficiency gains for long-term resilience can Europe's industrial base be secured. Otherwise, a creeping deindustrialization threatens, in which European companies become pawns in geopolitical power games, without the means to shape their own destiny.
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