According to outsourcing expert Pareekh Jain, auto companies and tier-1 give about USD 4 billion of business to both pure play ER&D firms and IT services’ ER&D divisions.
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At a time when rising insourcing is impacting Indian IT services firms, recent tech alliances between auto makers are threatening Indian IT ERD (engineering research and development) business. Multiple original equipment manufacturers (OEMs) have entered into alliances for joint software development this year – Volkswagen-Rivian, Volkswagen-Xpeng, Honda-Nissan and Volvo AB and Daimler Truck in CY2024 — to develop software and architecture that is likely to pull down the tech spend, amid a muted environment for the Indian ERD firms. Analysts say that this might further reduce the outsourcing business for IT firms, who are already impacted by tech spend slowdown.Advanced Driver Assistance System (ADAS), Electric Vehicles (EVs) and Software Defined Vehicles (SDVs) are main drivers of tech spend for automakers globally, experts said to ET. An increase in the focus on high-end infotainment inside vehicles is also making software inputs for vehicles grow in recent years. As per analysts at Kotak Institutional Equities, Volkswagen and Xpeng will be jointly developing zonal E/E (electrical / electronic) architecture to turn pure electric models of Volkswagen brands into software-defined vehicles in China from 2026.
Honda and Nissan too have announced alliance for software development. Volvo AB and Daimler Truck announced in May this year to develop a common software-defined vehicle platform and dedicated truck operating system, providing the basis for future software-defined commercial vehicles. The analysts further said in a recent note on August 14, “We believe there would be some opportunity from software integration, testing and validation activities from joint software development but this is likely to be lower than in a scenario of independent and parallel development programs by OEMs”.
According to outsourcing expert Pareekh Jain, auto companies and tier-1 give about USD 4 billion of business to both pure play ER&D firms and IT services’ ER&D divisions.
Jain who is also the chief executive of EIIRTrend engineering insight platform, said, “Indian automotive engineering service providers are starting to face client-specific issues, creating short-term challenges. The first issue is the shift in new product development priorities of automotive OEMs in the current macro environment. Some earlier EV programs have ended, leading to a strategy shift due to limited success in EVs and growing industry interest in hybrids, energy-efficient ICEs, and more.”
Jain added, “The second issue is the increasing partnerships between auto companies, such as Volkswagen and Rivian, which will lead to joint or shared R&D. This shift is impacting their R&D strategies and, consequently, their engineering engagements with Indian service providers.”
Gaurav Vasu, founder, UnearthInsight, a tech market intelligence firm, said, “Globally auto industry is seeing two distinct trends playing out. Affordable OEM & auto makers are under pressure to improve revenue growth and cut down tech spend for profitability. While luxury OEM / auto makers have seen better growth / profitability hence are experimenting new emerging technologies.”
