DRAUP BrainDesk Automotive Engineering Services are ...€¦ · Automotive engineering services...

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



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



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



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



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


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


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


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


Body Engineering

Chassis Engineering

Infotainment Systems


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



Chassis 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%


Body Engineering

Chassis 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)


$ 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


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


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)


$ 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


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

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