Automotive Engineering Services Outsourcing Market Analysis Report By Application, By Service, By Location And Segment Forecasts From 2020 To 2027

Industry Insights

The global automotive engineering services outsourcing market size was worth USD 65.5 billion in 2019. The market is estimated to register a CAGR of 27.8% over the forecast duration, 2020 to 2027. Technical advancements in outsourcing services and growing spending in research and developments by organizations are attributing to the growth of the market. Further, the advent of connected cars, guidance systems, vehicle positioning and IoT in the automobile is driving the growth of the market. Moreover, the growing inclination towards digitalized solutions in the automobile is estimated to affect the market positively.

With the advent of industry 4.0, the automobile industry is witnessing significant change as manufacturers are adopting automation technologies. The demand for outsourcing services is gaining traction as industry players are competing with each other to gain advantages of innovative technologies. For example, Altran released a front haul framework, which is expected to help wireless carriers and network equipment manufacturers with the deployment of 5G front haul.

In the past few years, De-verticalization and modular outsourcing have gained importance. The growing demand for standardized interfaces by manufacturers is attributing to the popularity of modular outsourcing. Modular outsourcing has enabled OEMs to outsource intricate modules apart from procuring simpler parts of the vehicle.

However, owing to the complexity involved in the design of the transmission, powertrain, and engine, manufacturers focus to design these parts in their in-house facilities instead of outsourcing them from ESPs. Additionally, the growing concerns regarding the disclosure of intellectual property and design are encouraging OEMs to set up their own production units. Thus, increasing focus by manufacturers to produce in-house design is anticipated to hamper the market growth during the forecast period.

Application Insights

By application, the market is segregated into body and chassis, infotainment and connectivity, driving/ADAS, powertrain & after-treatment, and others. In 2019, the powertrain & after-treatment category accounted for the highest share in the market and the segment is expected to maintain its dominance over the forecast duration. The powertrain segment has witnessed a significant change in the recent past owing to the growing focus on curbing carbon emissions and designing a cost-effective engine. This has resulted in a rise in the adoption of green technologies including electrification of the powertrain.

On the other hand, the body and chassis category held a considerable share in 2019 due to increasing demand for lightweight chassis that provide significantly lesser emission. In addition, manufacturers are emphasizing adhering to the norms related to a low emission, which, in turn, is driving the growth of this segment. Further, the growing focus on safety features in vehicles is driving the demand for the body and chassis segments.

The infotainment and connectivity category is estimated to grow at a CAGR of more than 31.0% over the forecast period. The growing popularity of connected cars is offering a lucrative opportunity for automotive ESO firms. Major outsourcing service providers are providing advanced connectivity solutions to cater to the need for infotainment & connectivity services. For example, Herman International introduced a cloud-based solution HARMAN Ignite Marketplace that offers voice assistants, messaging applications, media content, and various other solutions.

Service Insights

Depending on the service, the automotive ESO market is categorized into system integration, testing, prototyping, designing, and others. Of them, the designing category is anticipated to witness a CAGR of more than 29% over the forecast duration. Manufacturers are focusing on producing automobiles with spacious interiors. Elongated and spacious designs help in balancing power to weight ratios. Although manufacturers do not outsource solutions related to design, however, mechanical design services are outsourced in various emerging countries. 

Emerging countries such as India and China outsource their design to various OEMs in Japan, the U.S, and Germany. Automotive OEMs are investing heavily in research and development and collaborating with outsourcing service providers to cater to end-user demand. Further, increasing demand for technologies such as LED technology and refined aerodynamics is bolstering the market growth.

In 2019, the prototype category held the largest share in the market and anticipated to dominate the market over the forecast duration. The development in the design and processing for mass production incurs huge costs. Thereby, OEMs are increasingly collaborating with outsourcing service providers for the development of the product. Additionally, the advent of 3D printing of prototypes during the pre-manufacturing stage is also driving the segment growth.

Location Insights

On the basis of location, the market is bifurcated into off-shore and on-shore. On-shore offers services to the OEMs functioning within legal boundaries. On the other hand, off-shore service provides assist clients located in overseas locations.  In 2019, the on-shore segment accounted for the largest share in the market and the segment is estimated to continue its dominance over the forecast duration.

Moreover, outsourcing from foreign ESPs may not be safe, as many countries do not adhere to IP protection copyright laws. Additionally, automation technologies and self-serve solutions encourage OEMs to procure in-shore outsourcing services. Further, owing to other challenges such as language barriers, reliability, different time zone, and imposed regulations in outsourcing offshore services is leading to sluggish growth of this segment.

OEMs focus on procuring offshore outsourcing from countries that offer a low-cost solution. India and China are two major countries offering offshore solutions to various countries such as Japan, the U.S, Germany, and others. ESPs are investing significantly in setting up their delivery centers in such countries owing to the availability of skilled professionals at low costs. However, stringent regulatory norms, volatile political relations, and a diverse industry landscape are estimated to hinder market growth.

Regional Insights

Among different regions, South America is anticipated to witness the fastest growth of more than 32% over the forecast duration. Various OEMs located in countries such as Colombia, Argentina, and Brazil are focusing on the manufacturing of electrical and hybrid vehicles. Additionally, favorable government initiatives and the rise in budget allocation are bolstering regional growth.

In 2019, Asia Pacific held the largest share in the market, and the region is estimated to continue its dominance over the forecast duration. Easy availability of skilled labor at low cost in countries such as India, China, and the Philippines is the major factor attributing to the growth of the region. Owing to the availability of labor at a low cost, several companies outsource manufacturing and related services. Owing to this, automotive ESO providers are shifting their bases in the Asia Pacific. Japan is among major manufacturers of cars offering lucrative opportunities for ESPs. The Japanese government is aiming to increase the sales of next-generation automobiles by 50-70% by 2030, of them, this is estimated to account for around 30-40% while PHEVs and BEVs are estimated to hold 20-30% of the share.

Europe is projected to witness considerable growth as the region is home to some of the world-leading auto and parts makers such as Bosch, Volkswagen, Daimler. Further, growing automation and rising electrification of vehicles are estimated to offer a lucrative opportunity for service providers.

Impact of COVID-19

COVID-19 has adversely affected the automotive engineering outsourcing services market. Following the lockdown imposed owing to the pandemic outbreak, automotive sectors were either closed or allowed to operate with low employees count. This has severely affected the manufacturing operations. In addition, low demand for automotive has resulted in a reduction in expenditure by various automotive firms on research and development. However, with relaxing lockdown norms, auto sectors are witnessing a rise in demand for the vehicle, which is estimated to offer a lucrative opportunity for automotive ESPs over the next few years.

Key Companies & Market Share Insights

Market participants provide a custom-made solution to original equipment manufacturers to help them in expanding their geographical reach.  For example, Alten partnered with Syrphus GmbH and helped the company with micromechanics, development of hardware and software, stress calculation, computer-aided design, testing services, and electrical installation to manufacturing hybrid aircraft that is capable in vertical landing as well as take-off along with horizontal flight abilities. Leading market players are Bertrandt, Altran Technologies S.A, AVL List GmbH, Alten GmbH, and HORIBA, Ltd among others.

Automotive Engineering Services Outsourcing (ESO) Market Report Scope

Segments Covered in the Report

This report forecasts revenue growth at global, regional, and country levels, and provides an analysis of the latest industry trends in each of the sub-segments from 2016 to 2027. For the purpose of this study, Million Insights has segmented the global automotive engineering services outsourcing market report based on application, service, location, and region:

• Application Outlook (Revenue, USD Billion, 2016 - 2027)
    • Autonomous Driving/ADAS
    • Body & Chassis
    • Powertrain and After-treatment
    • Infotainment & Connectivity
    • Others

• Service Outlook (Revenue, USD Billion, 2016 - 2027)
    • Designing
    • Prototyping
    • System Integration
    • Testing
    • Others

• Location Outlook (Revenue, USD Billion, 2016 - 2027)
    • On-shore
    • Off-shore

• Region Outlook (Revenue, USD Billion, 2016 - 2027)
    • North America
        • U.S.
        • Canada
        • Mexico
    • Europe
        • Germany
        • France
        • U.K.
    • The Asia Pacific
        • China
        • India
        • Japan
    • South America
        • Brazil
    • Middle East & Africa