The global automotive engineering services market in terms of revenue was estimated to be worth $153.2 billion in 2022 and is poised to reach $243.9 billion by 2028, growing at a CAGR of 8.1% from 2022 to 2028. Automotive engineering service providers provide services such as concept/research, designing, prototyping, system integration, testing, among others to various global OEMs and component manufactures. Factors such as increased demand for zero-emission vehicles and strong government support have caused leading original equipment manufacturers (OEMs) to invest in R&D for automotive engineering services. OEMs and AES providers have set up R&D infrastructure all over the world to meet the rising demand of automotive engineering service in the global automotive market. With advances in technologies such as connected mobility, ADAS and safety features, new age battery technologies, among others, the automotive engineering services market is likely to grow.
Electrification of vehicles and increase in shared mobility
The increasing adoption of electric vehicles and the introduction of shared mobility are expected to change urban transportation. Increasing concerns over air pollution and global warming have compelled the governments of several countries to enforce strict emission policies and regulations for ICE vehicles. For example, in 2021, the US government announced its plan to replace all government vehicles with electric cars in a move to lower emissions by 2027. And the purchases of gas-powered vehicles are planned to end by 2035. The governments of Germany, Norway, the Netherlands, Japan, Singapore, and China have planned roadmaps to set up charging stations and provide subsidies to encourage more people to adopt electric vehicles. Similarly, the city of Toronto has announced its plan to replace 50% of its internal combustion engine (ICE fleet) with EVs and FCEVs. According to industry experts, electric vehicles will become more affordable than ICE vehicles as the cost of batteries declines over time. More EV sales would accentuate the need to develop new battery technologies, new chassis systems, innovative exterior designs, and advanced transmission systems for these vehicles. EV manufacturers such as Tesla, Nissan, and BAIC outsource the design and development of new technologies and solutions to Tier 1 engineering companies. This trend is likely to grow with the rise of EV sales and is expected to drive the automotive engineering services market during the forecast period.
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Stringent government regulations for automotive safety features
Governments of several countries have mandated safety features in upcoming vehicles to minimize incidents of over-speeding and fatal accidents. For example, the Union Road Transport Ministry of India proposed a mandate to incorporate advanced safety features, including Electronic Stability Control (ESC) and Autonomous Emergency Braking (AEB), in new vehicles between 2022 and 2023. The authority has also stressed that advanced safety features are required in all vehicles in India and cannot be confined to luxury vehicles only.
Likewise, in 2021, the US government signed a USD 1 trillion infrastructure law containing 10 new auto safety provisions including “modernizing standards” for crash avoidance technologies. Advanced safety features include advanced emergency braking, emergency lane-keeping systems, and improved car crash tests. All these mandates are crucial for overall road safety. Automotive manufacturers need to abide by the new mandates to improve passenger safety. For example, from July 2022, in Europe, a new Vehicle General Safety Regulation was applied which includes several mandatory advanced driver assistant systems to increase traffic safety and create the legal foundation for the EU’s acceptance of automated and fully driverless vehicles systems. All these mandates will have a serious impact on vehicle safety in the coming years and are expected to save over 25,000 lives and avoid at least 140,000 injuries by 2038 in Europe. OEM initiatives to implement these features early will create a huge demand for these solutions from engineering service providers.
Asia Pacific to be the fastest growing market by value during the forecast period
Asia Pacific is expected to be the fastest-growing market, with AES providers opening ER&D centres in the region due to lower resource cost and increasing profitability. Many governments in the Asia Pacific region are planning to replace their existing public fleets with electric vehicles in the future. The region is home to some big giants in the automotive engineering services industry, such as Tech Mahindra, HCL Technologies, Onward Technologies, Automotive Engineering Services (AES), T-Net Japan Co., Ltd., DesignTech Systems., and Horiba, Ltd. Apart from these, some new companies, such as L&T Technology Services and Imaginative Automotive Engineering Services, also provide automotive engineering services to OEMs worldwide. For instance, the newly incorporated L&T Technology Services partnered with BMW in August 2022 to provide engineering services to the OEM for a five-year period, mainly targeting connectivity and infotainment systems of BMW’s hybrid vehicle suite. Likewise, in October 2022, Tech Mahindra partnered with Foxconn. This partnership will focus on leveraging the R&D strength of various participants and developing reference designs with standards to bridge the gap for alliance members, thus accelerating innovation and reducing development cycles.
Key Market Players
The automotive engineering services market is dominated by established players such as Capgemini (France), IAV Automotive Engineering (Germany), Tech Mahindra (India), AKKA Technologies (Belgium), and HCL Technologies (India), among others.
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