Indian IT’s Engineering Research and Development (ER&D) sector faces mounting challenges as automakers globally forge strategic tech alliances, potentially diminishing their dependence on traditional IT outsourcing. Rising insourcing has already exerted pressure on Indian IT firms, and these newly formed partnerships among automotive giants could further disrupt the ER&D landscape.
Original Equipment Manufacturers (OEMs) such as Volkswagen, Rivian, Xpeng, Honda, Nissan, Volvo AB, and Daimler Truck have recently initiated significant collaborations. These alliances focus on joint software and architecture development, signaling a potential reduction in the tech spend typically directed toward Indian ER&D firms.
Redirection of Tech Investments
The automotive industry’s focus has shifted toward Advanced Driver Assistance Systems (ADAS), Electric Vehicles (EVs), and Software-Defined Vehicles (SDVs). These areas have driven substantial investment in technology, particularly with the growing integration of high-end infotainment systems in vehicles.
Analysts from Kotak Institutional Equities emphasize that Volkswagen and Xpeng’s collaboration targets the development of zonal electrical/electronic (E/E) architecture, aiming to transform Volkswagen’s electric models in China into software-defined vehicles by 2026.
While these advancements signify progress, the outsourcing sector might not witness proportional gains. Experts suggest potential opportunities for Indian firms in software integration, testing, and validation, though these opportunities appear limited compared to independent development projects previously undertaken by OEMs.
Industry Impact and Strategic Shifts
Pareekh Jain, CEO of EIIRTrend, an engineering insight platform, highlights that the automotive industry contributes approximately $4 billion in business to both pure-play ER&D firms and IT services’ ER&D divisions.
Yet, shifting product development priorities among OEMs reflect changes in their R&D strategies, leading to short-term challenges for Indian service providers. Partnerships like the one between Volkswagen and Rivian are driving these strategic shifts, consequently affecting Indian engineering engagements.
Diverging Trends in the Auto Industry
According to Gaurav Vasu, founder of UnearthInsight, a tech market intelligence firm, the global automotive industry is witnessing two distinct trends. Affordable OEMs grapple with the need to enhance revenue growth while reducing tech expenditures to maintain profitability. Meanwhile, luxury automakers, benefiting from stronger growth, are more willing to explore and adopt new, emerging technologies.
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