Post on 04-Jun-2020
1Source : DRAUP
Automotive Engineering Services are Experiencing Unprecedented Growth
AUGUST 2017
2Source : DRAUP
Ø ER&D spend has grown by 7% over last year
Ø The addressable market for engineering services is currently $ 32-33 Bn and expected to reach $ 37-38 Bn by 2020
Ø Automotive companies are leveraging cost arbitrage by outsourcing non-core activities
Ø ER&D services market has evolved over time. Embedded and software outsourcing is gaining momentum
Automotive engineering services market has grown by 13.5% over last 2 years
$ 750-800 Mn
$ 900-950 Mn
$ 1,000-1100 Mn
2014 2015 2016
Automotive Engineering services market
Growth Drivers17%YoY Growth
10%YoY Growth
Constant Increase in automotive ER&D spend of global companies 1
Increasing ER&D investment by software companies in autonomous & connected cars
2
Automotive companies leveraging cost arbitrage by outsourcing non-core activities
3
ER&D is an abbreviation for engineering research and development YoY abbreviation is used for year on year growth Note –
DRAUP analyzed past 3 years’ revenue of global automotive engineering services companies across service lines Financial data for analysis is taken from companies annual publications, updated as on August, 2017
Note:
3Source : DRAUP
What did DRAUP analyze ?
DRAUP launched a systemic study to understand specific dynamics of ER&D services industry
Global Automotive companies (Top R&D Spenders) Global Automotive engineering services companies
DRAUP Analysis Library
Ø Financial Revenue and R&D Spend(5 Year financials and geographical distribution of revenue and R&D spend)
Ø R&D centre details (Headcount, R&D spend, YoE, R&D activities and products developed)
Ø Captive centre(R&D workforce distribution in low cost locations)
Ø ER&D services insourcing & outsourced spend (DRAUP analyzed 2,000+ engineering services deals of global automotive companies)
70 90Ø Financials of automotive engineering services companies (Past 3 years’ revenue – by geography, service lines and technology)
Ø Automotive engineering services projects outsourced to service providers
(DRAUP analyzed a proprietary database of engineering services deals across 90 automotive engineering services companies)
Ø Primary interviews with engineering services companies (DRAUP conducted primary interviews with mid level management of engineering services companies to understand the distribution across engineering service.)
70 Automotive companies 90+ Service providers2,000+ ER&D services projects 1,000+ Primary interviews
SPs is an abbreviation of Service ProvidersER&D is an abbreviation for engineering research and development YoE abbreviation is used for year of establishment
Note –
4Source : DRAUP
Who should read this?
The study provides actionable insights for executives to support their global R&D initiatives. Useful findings include assessment of R&D locations, competitive analysis of the globalisation structures within peer organisations and R&D collaboration opportunities & challenges
Sales decision makers, sales executives and organisational leaders can leverage this study to understand their prospects’ business drivers and strategic objectives in the Engineering R&D space in the automotive industry. They can also leverage this study and enhance their spectrum of knowledge to influence their buyer’s purchasing decisions and capitalize on C –level opportunities
R&D Decision Makers
Sales executives of Engineering
ServiceProviders
5Source : DRAUP
What did we learn?
SPs is an abbreviation of Service ProvidersER&D is an abbreviation for engineering research and development
Note –
Automotive ER&D market and buy-side view of engineering services outsourcing1
Outsourcing models in ER&D services, within OEMs and tier 1 ER&D organizations3Potential opportunity areas for engineering services companies, by technology4Capabilities and market positioning of engineering services' vendors5
2 Engineering services market encompassing captives and service providers. Preferred locations for establishment of captive centers and service provider outsourcing
6Source : DRAUP
Automotive ER&D and Outsourcing Market Overview
7Source : DRAUP
DRAUP followed a structural approach to analyze global automotive R&D spenders and estimated total R&D spend in 2016 to be $117 Bn
R&D
Spe
nd in
$ B
illio
n à
66%R&D spend contribution by Top 10 R&D spenders
26%Next 20 R&D spend contribution
8%R&D spend contribution by Rest of the Companies
Top R&D Spenders
Company R&D Spend (2016)
Volkswagen $ 12.8 Bn
Toyota Motors $ 9.8 Bn
Daimler AG $ 8.4 Bn
General Motors $ 8.1 Bn
Robert Bosch $ 7.7 Bn
$ 117 BillionTotal R&D spend
Ø Global R&D spend is highly consolidated among top 10 R&D spenders. 8 of top 10 companies are OEMs
Ø OEMs constitute 77% of total automotive R&D spend
Ø Among top global automotive R&D spenders, 23 companies spend more than a billion dollars in R&D spend annually
Automotive companies à
DRAUP analyzed top 70 global automotive companies to arrive at total automotive R&D spend. Top 70 contribute to ~90% of total automotive ER&D spend (35 OEMs and 35 Tier 1s) Financial data for analysis is taken from companies annual publications, updated as on August, 2017
Note:
8Source : DRAUP
Approximately 27% of the total automotive engineering R&D spend is an addressable opportunity for captives and service providers
$
117Billion
Engineering R&D spend by global Automotive companies
(FY 2016)
$
32-33Billion
Total Addressable Opportunity in Engineering Services
(FY 2016)
58% 42%
Addressed Untapped opportunity
*DRAUP analysed top 70 engineering R&D spenders core and non-core activities to arrive at total addressable opportunity of captive centres and service providers **Addressed opportunity is based on R&D spend of captives on low cost location and engineering service revenue of SPs from automotive verticalNote:
Engineering R&D Spend
Addressable opportunity
Current Addressed
$ 18-20 Bn $ 13-15 Bn
$
32-33Bn
*
**
9Source : DRAUP
Emerging automotive R&D hotspots are USA(Bay area), India and China(1/2)
Global automotive R&D center distribution and growth
Engineering R&D Spend
Addressable opportunity
Current Addressed
127
299
47
126 151
148
325
63
174 158
USA *Western Europe India China Japan
2010
2016
Insights
CAGR: 2.5%
CAGR: 1.4%
CAGR: 5%
CAGR: 5.5% CAGR: 0.7%
Ø Volkswagen, Toyota and Daimler have R&D hubs in Bay Area, highly focussed on new age skills
Ø Michigan is a traditional automotive engineering hub with 9 out of top 10 OEM presence
Ø Largely dominated by local OEMs like Daimler, Volkswagen and BMW
Ø India has low cost software talent availability. China is favourable for low cost manufacturing at scale & access to largest market
Ø Declining R&D workforce and vehicle consumption rates restrict market entry of global players
Ø China is the most preferred location to set up R&D captive centers, with 48 new automotive R&D captives added over last 6 years
Ø Out of 21 new R&D centres in USA, 14 opened in Bay Area
Ø Car makers are leveraging India for low cost, scalable software talent. Since 2010, 16 new automotive R&D captives have opened in India.
DRAUP analyzed inception years of 2,000+ R&D centers of 70 automotive companies across geographies, updated as on August, 2017Note:
*Automotive R&D centres in western Europe are mainly distributed across Germany, France, UK and Sweden
10Source : DRAUP
The Engineering R&D workforce is well-distributed across HQ (54%) and non-HQ (46%) locations
Automotive engineering R&D workforce distribution
570,000-580,000
Engineering R&D Spend
Addressable opportunity
Current Addressed
Ø Automotive industry R&D workforce is well distributed across geographies.
Ø Tier1s are more globalised as compared to OEMs
Engineering Employees HQ Center
Engineering Employees Non-
HQ Center(s)
Region Total employees Employees % in HQ location
Employees % in non-HQ location(s)
North America 95,000-100,000 48% 52%
South America 10,000-15,000 - 100%
Europe 200,000-205,000 55% 45%
Middle east & Africa <3,000 - 100%
APAC 130,000-135,000 39% 61%
*Other 25,000-30,000 - -
380,000-385,000
185,000-190,000Tier 1s
OEMs
DRAUP analyzed R&D workforce of global automotive companies across geographies to understand the intensity of globalization , updated as on August, 2017Note:
* Other includes R&D workforce distributed across remaining geographies
54% 46%
Total Automotive engineering R&D workforce
54%
29%
46%
71%
11Source : DRAUP
Current Addressable Market for automotive engineering services stands over $32 Bn
Engineering R&D Spend
Addressable opportunity
Current Addressed
Ø Automotive being a traditional industry, has a huge manufacturing spend. Hence, 70% of the addressable opportunity lies in mechanical technologies
Ø Car makers and software companies are spending heavily in autonomous & connected cars market (approximately $ 30 Bn). This will increase the outsourcing in embedded and software technologies in future.
$
32-33Billion
Total Addressable engineering services opportunity
70%
25%
5%
Activity split
Infotainment systems Powertrain Safety
systems
Autonomous & connected
cars
Infotainment systems
Body electronics
Safety systems Powertrain
Body engineering Powertrain Chassis Wheel
assembly
Software
Embedded
Mechanical
Addressable opportunity intensity
High Low
DRAUP analysed top 70 engineering R&D spenders, core and non-core activities to arrive at total addressable opportunity of captive centres and service providers, updated as on August, 2017
Note:
12Source : DRAUP
Western Europe service providers dominate the engineering services market, while APAC is the preferred location for captive centres
Ø Western Europe vendors account
for more than 60% of the overall
engineering services market, with
top vendors being Altran, Alten and
EDAG
Ø China, India and Eastern Europe are the emerging outsourcing geographies primarily because of
the availability of scalable, skilled
and low cost talent.
Ø APAC region constitutes 63% of total captive outsourcing market
Global Engineering Services addressed market
$ 8-10 Bn*Captive $ 10-11 BnService providers
$ 18-20 Bn
Western Europe
Eastern Europe
North America
South America
APAC
$ 1-2 BnCaptive
$ <1 BnService providers
$ 5-6 BnCaptive
$ 2-3 BnService providers
$ 6-7 BnService providers
No low cost location
$ <1 BnCaptive
$ <0.5 BnService providers
$ 1- 1.5 BnService providers
No low cost location
**Geographical split
*Captive market size is based on R&D centres spend in low cost location, updated as on August, 2017;
Captive Centers (Low cost locations) : Brazil, Bulgaria, China, India, Indonesia, Israel, Mexico, Poland, Romania, South Africa, Slovenia, Thailand, Ukraine, VietnamNote:
Engineering
R&D Spend
Addressable
opportunity
Current
Addressed
**Geographical split will not add up to $ 18-20 Bn. Apart from the geographies mentioned above companies also have spend in south Africa & japan region
13Source : DRAUP
OEMs prefer to outsource to service providers whereas tier 1s prefer to insource at low cost captive centers
Ø Tier 1s prefer to insource engineering services activities to captive centres. Top companies like Bosch and Continental prefer to insource at India, China and eastern Europe captives
Ø OEMs primarily outsource to service providers. Around 70% of service providers' total revenue comes from OEMs
Engineering R&D Spend
Addressable opportunity
Current Addressed
Continental
Robert Bosch
Renault
GREAT WALL MOTOR
Volkswagen
Groupe PSA
Ford Motor
Delphi
Daimler
BMW
Tata Motors
Fiat
Valeo
Volvo
Nissan Motor
General Motors
Honda Motor
Hella
SAIC Motor
Toyota Motor
Takata
VisteonDenso
ZF Group
Yamaha
Hyundai Motor
Mazda MotorCalsonic Kansei
Aisin Seiki
Navistar
Goodyear
Isuzu Motors
PACCARKia Motors
R&D
Inte
nsity
* Lo
wH
igh
Intensity of work outsourced to captive and service providers** HighLowBubble Size represents absolute R&D Spend
High insourcing + outsourcing intensity
Automotive companies insource and outsource intensity
Service Providers Dominant Outsourcing
Captive Dominant Outsourcing
Balanced Outsourcing
DRAUP analyzed 2,000+ engineering services outsourcing deals of 70 global automotive R&D spenders (by geography and vendors ),updated as on August, 2017Note:
*R&D Intensity- percentage of ER&D spend with respect to revenue ** X axis shows the intensity of work outsourced to SPs and insourced in low cost captives
14Source : DRAUP
Engineering Services Market and Outsourcing Analysis
15Source : DRAUP
Overall engineering services market is consolidated; top 30 service providers contribute to ~61% of the market
41%
Revenue contribution by Top 10 Vendors
20%
Revenue contribution by next 20 Vendors
Revenue contribution by Other 100 vendors
39%
$ 10-11 BillionAutomotive engineering services revenue
Reve
nue
in $
Mill
ion à
Engineering services companies à
Automotive engineering services revenue
Company Revenue
Bertrandt $ 1,030-1,060 Mn
IAV $ 740-800 Mn
EDAG Engineering $ 730-790 Mn
Akka $ 440-480 MnAltran $ 430-470 Mn
Ø European services providers account for majority of the revenue share from the automotive engineering services industry
Ø Large staffing companies from USA and engineering services divisions of Indian IT firms account for the rest of the revenues from automotive engineering services
DRAUP analyzed revenue and engineering services deals from 90 automotive engineering services companiesFinancial data for analysis is taken from companies’ annual publications, updated as on August, 2017Note:
16Source : DRAUP
Engineering service outsourcing has grown by 13.5% from 2014, reaches to current outsourcing of over $ 10 Bn
Ø Approximately 54% of engineering services outsourcing is in mechanical technology
Ø Embedded and software technologies will drive the future growth for engineering services outsourcing, as OEMs, Tier 1s and software companies are spending heavily in autonomous and connected cars sub-vertical40%
54%
6%
7-89-10
10-11
Automotive engineering services market (in $ Bn)
16.9%10.3%
YoY GrowthYoY Growth
2014 2015 2016
Mechanical
Software
Embedded
Horizontal Activity Split
2016
$ 10-11 Bn
Years
DRAUP analyzed past 3 years revenue of global automotive engineering services companies across service lines Financial data for analysis is taken from companies annual publications, updated as on August, 2017
Note:
17Source : DRAUP
The European engineering services market has reached a saturation point, with 68% of its share distributed among top 5 service providers
Ø ~75% of European engineering services market is distributed among top 5 vendors
Ø With their high growth rates, India and China are emerging as preferred locations for outsourcing
Automotive engineering services vendors’ revenue
14
23 28
1 1.08
USA
9%
6.67 6.81
Europe
2%
1.36 1.66
India
22%
0.52 0.6
China
15%
1. Infosys2. Tata technologies3. Altran4. KPIT5. HCL
1. Bertrandt2. Altran3. EDAG4. Alten5. IAV
1. HARMAN2. L&T TS3. Wipro4. TCS5. Tech Mahindra
1. Altran2. Beyondsoft3. ESG Automotive4. ESI Group5. Neusoft
2015 2016Revenue
($ Bn)
Top 5 vendors
Above data points are based on service providers’ revenue distributed across geographies Financial data for analysis is taken from companies annual publications, updated as on August, 2017
Note:
*Europe market includes Western Europe, Eastern Europe and central Europe countries
*
18Source : DRAUP
Renault
Volkswagen
BMW
Daimler
Ford Motor
Volvo
Groupe PSA
Tata Motors
Valeo
Continental
Delphi
Automotive
General
Motors
Nissan Motor
Fiat
Robert Bosch
Toyota Motor
Honda MotorZF Group
Tesla Motors
While most automotive companies outsource to leverage low cost talent, the companies that outsource the most also do it to obtain highly skilled workforce
Low cost location Outsourcing Intensity à
High
Cos
t loc
atio
n Ou
tsou
rcin
g In
tens
ity à
Bubble Size represents absolute Outsourcing Spend
Outsourcing Driver : Technology and Talent
Outsourcing Driver : Cost
Ø More than 60% of the outsourcing
by Tesla, Nissan Motors,
Volkswagen, Ford Motors, BMW
and Renault happens at high cost
locations, given their requirements
for skilled talent and technology.
Ø Tata Motors, General Motors and
few Tier 1s such as Continental,
Delphi outsource primarily from low
cost locations such as India and
China
DRAUP analysed 2,000+ engineering services deals of top 70 automotive companies for above analysis , updated as on August, 2017
Location-wise Comparative study of activities outsourced (high cost vs low cost)
Note:
• Low cost location outsourcing intensity – Volume of workforce outsourced from low cost location/ Total workforce• High cost location outsourcing intensity – Volume of workforce outsourced from high cost location/ Total workforce
19Source : DRAUP
Great Wall Motors, BMW, Renault and Valeo are examples of companies that outsource in new age technology areas
Ø Great Wall Motors is an outlier when compared to its peers as most of the deals it has outsourced are in new age technologies.
Ø BMW and Renault are a close second when it comes to outsourcing deals in new age technologies.
Insights
Renault
BMW
Volkswagen
Ford Motor
Daimler
VolvoGroupe PSA
Valeo
Continental
Tata Motors
Nissan MotorDelphi Automotive
Fiat
General Motors
Robert Bosch
Toyota Motor
Honda Motor
ZF GroupJohnson ControlsDenso
Hyundai Motor
Mitsubishi MotorsVisteon
HellaCalsonic KanseiSAIC Motor
No.
Of d
eals
à
Future Readiness*à
New Age TechnologiesTraditional Technologies
Bubble Size represents outsourced Spend
*Future readiness represents outsourced headcount in new age technologies
Outsourced deals analysis by automotive companies and technology area
Great wall motors
Traditional Technologies- Body Control Module, Drivetrain systems, Navigation System, Steering systemNew Age Technologies- ADAS, Battery Management, Driving Assist Sensors, Electric Vehicles
Note: DRAUP leveraged proprietary deals database of 90 automotive engineering services companies for above analysis, updated as on August, 2017
20Source : DRAUP
Most of the new age technology deals are being catered to by leading automotive service providers
No.
Of d
eals
à
Future Readiness*à
New Age TechnologiesTraditional Technologies
Bubble Size represents outsourcing Spend
*Future readiness represents outsourced headcount in new age technologies
InfosysESG AutomotiveHCL
Tata Elxsi
Tech Mahindra
L&T TS
KPIT
FEV
TCS
Altran
Alten
Bertrandt
Assystem
EDAG
AKKA Technologoes
IAV
Tata TechnologiesSegula Technologies
Ø Bertrandt and Alten are the leading vendors in new age technology outsourcing areas
Ø Altran, EDAG and TCS are other followers that have high revenues coming in from new age technology outsourcing deals.
Outsourced deals analysis by vendors and technology area
Note: DRAUP leveraged proprietary deals database of 130 automotive engineering services companies for above analysis, updated as on August, 2017
Traditional Technologies- Body Control Module, Drivetrain systems, Navigation System, Steering systemNew Age Technologies- ADAS, Battery Management, Driving Assist Sensors, Electric Vehicles
21Source : DRAUP
Large scale OEMs with high propensity to outsource are potential targets for service providers
Renault
Tata Motors
Valeo
Volvo
Groupe PSA
BMW
Delphi
Continental
Ford MotorDaimler
Fiat
Visteon
Nissan Motor
Volkswagen
Calsonic Kansei
Takata
ZF Group
General Motors
Robert Bosch
Honda Motor
Hella
Toyota Motor
Navistar
Hyundai Motor
Aisin Seiki
Denso
Mazda Motor
PACCAR
Yamaha
Goodyear
Kia Motors
SAIC Motor
Isuzu Motors
R&D
Inte
nsity
* Lo
wH
igh
HighLow Outsourcing Intensity #
High Potential Target accounts
Bubble Size represents absolute R&D Spend
Ø Companies with high R&D spend and outsourcing propensity are the potential accounts for service providers to target
Outsourcing propensity for automotive companies
Note: DRAUP leveraged proprietary deals database of 90 automotive engineering services companies for above analysis, updated as on August, 2017
22Source : DRAUP
Roughly 25% of the outsourcing spend in automotive engineering services, is from the top 5 outsourcers
$ 10,000-11,000MnEngineering services spend
$ 2,000-3,000 MnEngineering services spend of top 5 outsourcers
$ 800-900 Mn $ 600-700 Mn $ 500-600 Mn $ 400-500 Mn $ 400-500 Mn
1. Bertrand 2. EDAG3. Altran 4. IAV5. Ferchau
1. Bertrand 2. EDAG3. Altran 4. IAV5. Segula
1. Bertrand 2. EDAG3. Altran 4. IAV5. Ferchau
1. Bertrand 2. EDAG3. Infosys 4. IAV5. P3
1. Bertrand 2. Geometric 3. Roush4. TCS5. EDAG
2%
39%
9%5%
38%
7%3%
46%
19%
6%
17%
10%1%
44%
8%12%
22% 14%
0%
57%
9%
19% 13
%2% 0%
11%9%
43%
9%
27%
Top Vendors Connected Cars
Body Engineering
Chassis Engineering
Infotainment
Powertrain Engineering
Safety Systems
Top 5 engineering services outsourcers
Note: DRAUP leveraged proprietary deals database of 90 automotive engineering services companies for above analysis, updated as on August, 2017
23Source : DRAUP
Outsourcing Landscape : Technology Deep Dive
24Source : DRAUP
Outsourcing intensity dashboard for automotive sub-verticals
OEMs Tier-1 Embedded Mechanical Software
Body engineering
Embedded Mechanical Software
Powertrain
Infotainment
Chassis
Safety
Autonomous & Connected
New Age Technology
Ø Infotainment systems, safety systems and connected cars are the top sub-vertical outsourced in embedded and software technologies
Ø Body engineering, Powertrain and Chassis engineering are the top sub-vertical outsourced in mechanical technology
Note - The above analysis is based on the DRAUP’s proprietary engineering deals database and insights from industry stakeholders, updated as on August, 2017
25Source : DRAUP
Outsourcing market of engineering services across sub-verticals
$ 10,000-11,000 MnEngineering services market OEM 80% Tier120%
$ 2,450 - 2,500 Mn
$ 200 - 250 Mn
$ 1450 - 1500 Mn
$ 3850 - 3900 Mn
$ 1,100 – 1,150 Mn
$ 800 - 850 Mn
$ 15 - 25 Mn
Autonomous and Connected Cars
Chassis Engineering
Powertrain
Safety Systems
Body Engineering
Infotainment
Others
48% 22% 20%Engine Systems Electric vehicle Others
36% 21% 43%ADAS Passive Safety Others
21% 13% 66%Radar Adaptive controls Others
15% 26% 59%Connectivity HMI Others
25% 25% 50%Braking systems Steering Systems Others
18% 11% 71%Body electronics BIW Others
Ø OEMs outsource 80% of total engineering services activities
Ø Body engineering and powertrain systems are the top sub-vertical outsourced, followed by infotainment and chassis engineering
Product line SplitOutsourced market
Outsourced % split by OEM/Tier 1
Note - The above analysis is based on the DRAUP’s proprietary engineering database and insights from industry stakeholders, updated as on August, 2017
26Source : DRAUP
Split of sub-verticals outsourcing by region
Autonomous & Connected Cars
Body Engineering
Chassis Engineering
InfotainmentSystems
PowertrainEngineering
Safety Systems
WheelAssembly
2%35% 10% 13% 23% 7%
0.2%
22%14%10%
8%8%
Groupe PSARenaultBMWGeneral MotorsValeo
22%14%10%
8%8%
RenaultBMWVolkswagenVolvoDaimler
21%5%3%2%2%
Great Wall MotorTata MotorsDaimlerVolvoGroupe PSA
27%13%7%6%6%
Ford MotorGreat Wall MotorBMWDaimlerHonda
Ø Most of the outsourcing activities in America and APAC are in Infotainment systems and body engineering
Ø Europe dominates the Powertrain and Body Engineering outsourcing deals, largely due to the presence of local European OEMs
Middle East & AfricaEuropeAmerica APAC6%
30%
9%34%
19%
2%
$1-1.1Bn
2%
36%
10%10%
27%
8%
$6.8-6.9Bn
30%
34%
5%5%
18%
$0.05-0.1Bn
1%
40%
11%21%
15%
11%
$1.7-1.8Bn
Top outsourcers (by region)
$ 10-11 BnEngineering services market
Note - The above analysis is based on the DRAUP’s proprietary engineering database and insights from industry stakeholders, updated as on August, 2017
27Source : DRAUP
Autonomous and Connected Cars
Body Engineering
Chassis Engineering
Infotainment Systems
Powertrain Engineering
Safety Systems
Wheel Assembly
Body engineering, powertrain and Infotainment systems are the potential opportunity areas for service providers (1/2)
Num
ber o
f ven
dors
Average deal size HighLow
Low
High
Bubble Size represents total work outsourced to service providers
Ease of entry in automotive sub-vertical
Key sub segments outsourced
Body Engineering
Autonomous and Connected Cars
Infotainment Systems
Chassis Engineering
Powertrain Engineering
Wheel Assembly
Safety Systems
Propensity to outsource
Body Electronics, Body Interior, Interior Exterior Development, BIW
HMI, Instrument Clusters, Connectivity systems, Navigation systems
Engine Systems, Hybrid Electric Vehicle, Diesel Engine, Drivetrain systems
Braking Systems, Steering systems, suspension systems, Chassis sensors
ADAS, Passive & Active Safety systems, Intelligent Parking Assist
RADAR, Adaptive Cruise Control, Collision Warning, Vehicle & Asset tracking
Tyre Systems
HighLow Outsourcing propensity
28Source : DRAUP
Average deal sizes in Body Engineering and Powertrain are higher compared to other sub-verticals (2/2)
57%38% 45%
55%
57%
43%
49%
51%
45%
Autonomous and Connected Cars
Body Engineering
Chassis Engineering
Infotainment Systems
Powertrain Engineering
Safety SystemsSub Vertical
Average deal size By vendor
$
60 - 65 Mn
$
8 -11 Mn
$
30 - 35Mn
$
60 - 65Mn
$
30 - 35 Mn
$
25 - 30 Mn
43%62% 55%
Ø Body Engineering and Powertrain sub-verticals stand out in average deal size across all technologies
Ø Infotainment systems average deal size is high and have less concentrated revenue by top 5 players
Note: Above analysis is based on the DRAUP’s proprietary engineering services deals database
29Source : DRAUP
Top 5 Vendors' Revenue Analysis, by service lines and sub-verticals (1/2)
$ 10-11 BnEngineering services market
$ 3.6 BNEngineering services revenue of top 5 vendors
$ 3.6 - 4 Bn
35%
62%
3%
Mechanical
Software
Embedded
9%
37%
36%
10%
7%1%Autonomous & Connected Cars
Infotainment Systems
Chassis
Powertrain
Body Engineering
Safety systems
Horizontal Activity Split Sub vertical activity split
Ø Top 5 vendors' revenues contribute to 36% of the overall engineering services market
Ø 62% of the vendors' revenues come from Mechanical engineering services
Ø Powertrain & Body engineering are major areas outsourced to top vendors
Top 5 vendors contribute to 36% of market
Automotive engineering services revenue
Bertrandt $ 1,030-1,060 Mn
IAV $ 740-800 Mn
EDAG Engineering $ 730-790 Mn
Akka technologies $ 440-480 Mn
Altran $ 430-470 Mn
DRAUP analyzed 90 automotive engineering services companies revenue and identified top 5 automotive service providersHorizontal and sub vertical activity split is based on DRAUP’s proprietary automotive engineering services deals database
Note:
30Source : DRAUP
Top 5 Vendors' Revenue Analysis, by geography (2/2)
$ 10-11 BnEngineering services market
$ 3.6 BNEngineering services revenue of top 5 vendors
$ 3.6 - 4Bn
89%
4%
3%1%
3%
North America
South America
Europe
Geographical Split
Ø The top 5 vendors' revenues are highly concentrated in the European region
Top 5 vendors contribute to 36% of market
Middle east & Africa
APAC
Automotive engineering services revenue
Bertrandt $ 1030-1060 MN
IAV $ 740-800 MN
EDAG Engineering $ 730-790 MN
Akka technologies $ 440-480 MN
Altran $ 430-470 MN
DRAUP analyzed 90 automotive engineering services companies revenue and identified top 5 automotive service providersGeographical split is based on financial data published by service providersNote:
31Source : DRAUP
Integrated “Zinnov Zones” rating for engineering services vendors
High
Low
Nurture Zone Breakout Zone Execution Zone Leadership Zone
Sca
labi
lity
Zinnov Zones – Leading Service Providers
TCS
Altran
HARMAN Connected Services
L&T TS
*Capgemini
HCLTech
MahindraTata Elxsi
Wipro
Tata Technologies
Sasken
QuEST Global
Happiest Minds
Aricent
KPIT Technologies
GlobalLogicGlobalEdge
Mindtree
ITC Infotech
Hughes Systique
Ness Digital Engineering
Innominds
Infosys
Sca
le, #
of S
ub-V
ertic
als
serv
iced
, Clie
nt S
prea
d
• On the way into big league, delivering R&D services effectively, tear down , purpose fit labs
• Generic Capability across Engineering, Embedded and Software services and Niche capability in one area
• Innovation frameworks resulting in tangible benefit to customers
• Specific industry alliances, partnerships and membership in Global forums
• R&D and PES as a focus area
• Niche capability in one type of PES service (Engineering / Embedded / Software)
• Innovation, if at all, in process optimization
• Generic - MoUs with universities and alliances
• Capable of performing concept to Go-To-Market for the product –Significant investment in Lab infrastructure
• Niche capability across Engineering, Embedded and Software services
• Formal innovation culture, resulting in IPs and strategic innovations
• Leadership role in alliances, leverage startups, pecific academic research, and co-creation with customers
• Capable of delivering complete product development as a true engineering partner, Customer Labs
• Niche capability spans across two service types and at least generic capability level in one service type
• Reusable IPs built, and benefits quantified
• Alliances with Customers who are Industry Leaders
R&D Practice Maturity
Breadth
Innovation
Eco-system Connect
Partial Participation by Service Provider
AkkaTechnologies
Assystem
Alten
ESG Automation
IAV
Luxoft
NeusoftBertrandt
*Capgemini – After IGATE’s acquisition
32Source : DRAUP
What did we learn?
• Automotive R&D spend reached $117 Billion in 2016. The R&D spend is highly consolidated among top 10 R&D spenders.
• Over the past 6 years, automotive companies have been focusing on globalizing their R&D footprint and shifting from HQ to non-HQ
locations. They are either moving towards technology hubs in USA (Bay Area & Detroit) or setting up centres in APAC region to
leverage the low-cost talent.
• Automotive companies prefer to outsource their work to service providers rather than opening new captive centres. OEMs are more
likely to outsource their work to service providers as compared to tier 1s.
• Service providers continue to expand in the engineering services space, with a market growth of 13.5% from 2014. Western Europe
service providers dominate the market..
• APAC is the preferred location for automotive OEMs and tier 1s to outsource their work to service providers, due to availability of low
cost talent, scaled talent.
• OEMs contribute to major share of automotive engineering services spendThe ER&D spend of OEMs constitutes approximately 80%
of the engineering services outsourcing market.
• Top 5 outsourcers are OEMs and contribute to ~25% of overall engineering services spend
• Most of the current deals outsourced are in Body Engineering and Powertrain technology areas, and generate the majority of revenue
share for service providers. But Safety and Connected Cars will drive future outsourcing deals.
SPs is an abbreviation of Service Providers
ER&D is an abbreviation for engineering research and development Note –
SUMMARY
33Source : DRAUP