Emerging technologies and automotive trends are having a huge impact on traditional automotive engineering firms to stay in the game. In fact, today’s car is more like a data-center on wheels; the software content in vehicles is ever-increasing and growing in sophistication and complexity. High-end cars now have about 100 million lines of code (a steep increase from about 1 million lines of code in 2000) and this will treble in the next few years.
In this context, service providers have no choice but to invest in developing their technology capabilities. This PoV is a reality check for both automotive engineering service providers and enterprises to assess whether they are investing in the right areas for developing their automotive engineering capabilities and to identify action points for future-proofing their automotive engineering operations. We have identified eight areas of technology play comprising: autonomous vehicles, electric vehicle, connected cars, shared mobility, IoT, 3D printing, artificial intelligence (AI) and composites (see Exhibit 1, below).
Exhibit 1: Emerging technologies and trends influencing automotive engineering
Source: HfS Research, 2018
Where investments need to be considered
The automotive industry is observing a shift from a car ownership model to a shared mobility concept that can potentially reduce the overall new car market, especially in the high-volume budget car segment. Connected car platforms enable the monitoring of car data for predictive maintenance and other car performance parameters. We have also observed a lot of focus to build a self-driving car and are expecting a self-driving car prototype (expected level 5) to be ready by 2020. 3D printing technology is simplifying the automotive supply chain with cost-effective localized manufacturing and composites are enabling the manufacture of lightweight vehicles, resulting in improved productivity, fuel economy and durability.
At present, there are many platforms available in the market for connectivity, testing, infotainment, and autonomous driving. There is a lot of diversity among these proprietary and open-source platforms. Service providers need to be selective about their investments in the right platforms.
Other focus areas include investment in:
We released our HfS Automotive Engineering Services Blueprint recently, wherein we evaluated 25[1] leading service providers. In this PoV, we discuss the top go-to-market strategies adopted by the automotive engineering service providers, their key differentiators, and the investments they made to boost their services capabilities.
The automotive industry is at an inflection point of massive disruption, in terms of both technologies and new entrants. With the advent of new-age tech companies, such as Google and Uber, there is an influx of new technologies and a shift to new business models. There are also some relatively new entrants successfully popularising new concepts, like Tesla with their unique and exciting electric vehicles (EVs), for example. The burden is now on traditional automotive players to stay relevant in their business space.
Automotive OEMs are being challenged from many directions, not least by the competition in China – BYD and BAIC already have the largest share in the EV market by volume. Some other Chinese automotive OEMs, such as Geely, also have global ambitions.
Traditional automotive OEMs and Tier-1s are developing expertise in software, embedded systems, IoT, and so on. As the software components in their vehicles are increasing in number and complexity, automotive OEMs and Tier-1 suppliers are looking for partnerships in these digital areas. Even their factories are being digitized with Industry 4.0. This digitization is important not only for attaining competitive advantage, but also for the survival of these automotive enterprises.
Automotive companies are allocating more dollars in self-driving, connected car, and electric vehicle related technologies. So, the OEMs need to outsource some of their mechanical works to free up capital that can be invested in the emerging areas. Automotive firms typically spend 3% to 7% of their revenue on R&D. In contrast, Tesla spends about 17% of its revenue on R&D. Automotive firms need to increase their R&D spending substantially to compete in new technologies with the likes of Tesla.
Automotive clients are moving away from small module or system-based projects toward end-to-end project ownership. These projects demand end-to-end vehicle engineering capabilities that include design, development, testing, and homologation. Service providers need to adapt an integrated solutions approach to execute the turn-key projects.
The top go-to-market strategies adopted by service providers
Automotive engineering services providers most frequently turn to emerging automotive technology areas (highlighted in Exhibit 1) and strategic partnerships with clients for growth strategies (see Exhibit 2, below).
Exhibit 2: Strategies adopted by service providers to grow their automotive engineering business
Source: HfS Research, Automotive Engineering Blueprint 2018, n=15 service providers
Automotive software content is increasing in frequency and complexity, with the applications of human machine interface (HMI), in-vehicle infotainment (IVI), instrument clusters, and autonomous driving. Traditionally, automotive OEMs and Tier-1 suppliers have had strong expertise in mechanical engineering, so they are outsourcing most of these digital projects. Buyers are looking for non-linear pricing models (such as royalty-based or outcome-related pricing) to minimize their own effort and risk on new product development activities. With the advent of IoT, cars are connected to the internet and car data is tracked in real-time. This information is further analyzed to track and measure both car and driver performance (for predictive maintenance purposes, for example). Service providers need to develop new service offerings in this space, in addition to solutions development, to enable their customers to reduce their product development and sustenance lifecycle commitments.
As these new trends are still in their infancy, both clients and service providers have a long way to go. The challenge for engineering service providers is to gain expertise around network communications, cloud, cyber security, over-the-air (OTA) updates, and other digital areas, including managing the integration complexity.
Identifying the key differentiators of the automotive engineering services providers
Service providers want to differentiate themselves by demonstrating their automotive solutions portfolios, advanced engineering capabilities, and client relationship management styles (see Exhibit 3, below).
Exhibit 3: Key differentiators between the top go-to-market strategies adopted by the automotive engineering service providers.
Source: HfS Research, Automotive Engineering Blueprint 2018, n=15 service providers
Other differentiators include experience in automotive engagements and having deep domain expertise (which provides value across the chain of new product development, product sustenance, manufacturing support, testing and certification, services, and software implementation).
The priority for service providers is to prepare the organization for next-generation automotive engineering technology. The key steps towards this goal include developing partnership ecosystems, investing in technical infrastructure, and improving delivery capability, as the automotive market buzzes with trends, including those of connected cars, autonomous driving, electric vehicles, and shared mobility. Service providers need to align and build their solutions very carefully in this space.
The bottom line:
Get ready for this paradigm shift in automotiveengineering services
So, this is the direction you should be taking: advanced capability and client partnerships.
Service providers need long-term strategic planning to equip themselves for capabilities across the value chain. You should aim to start with vehicle design, then engineering, testing, and manufacturing support, and then continue into life-cycle management. Due to the newness of some emerging automotive areas (electric vehicle, connected car applications, autonomous driving, etc.), buyers face challenges in this space. Service providers need to both explore these emerging areas with small partnership projects and to develop more in-house capabilities concurrently.
[1] ÅF, Alten, Altran, AKKA Technologies, Assystem Technologies, AVL, Bertrandt, Capgemini, Cognizant, EDAG, HARMAN, HCL, IAV, Infosys, ITC Infotech, KPIT, L&T Technology Services, Luxoft, NESS, Sasken, TCS, Tata Elxsi, Tech Mahindra, Tata Technologies, Wipro
Register now for immediate access of HFS' research, data and forward looking trends.
Get Started
If you don't have an account, Register here |
Register now for immediate access of HFS' research, data and forward looking trends.
Get Started