Automotive Engineering Service Outsourcing Market Size, Share, and Growth Forecast for 2024 - 2031

Automotive Engineering Service Outsourcing Market Size and Share Analysis

The global automotive engineering service outsourcing market is estimated to reach a size of US$ 108.58 Bn in 2024. It is predicted to rise at a CAGR of 10.7% through the assessment period to attain a value of US$ 221 Bn by 2031.

Demand for automotive Engineering Service Outsourcing (ESO) is skyrocketing as automakers use more sophisticated connectivity technologies to satisfy changing customer needs. Adoption of IoT and AI technologies is driving demand for features such as navigation systems, smart infotainment, passenger safety enhancements, and remote diagnostics.

Companies such as Capgemini and Tata Technologies are collaborating with Original Equipment Manufacturers (OEMs) to provide cutting-edge digital solutions. For instance, in January 2024, Tata Technologies announced a partnership with a leading Europe-based automaker to develop AI-driven ADAS systems.

Government initiatives promoting green vehicles, such as subsidies and tax incentives, have further encouraged the deployment of electric and hybrid vehicles, accelerating ESO demand. Use of lightweight materials and unique manufacturing techniques like 3D printing is gaining popularity, thereby reducing vehicle weight and emissions. Automakers are enhancing their autonomous driving technologies and Advanced Driver-Assistance Systems (ADAS) to remain competitive in the evolving automotive industry.

Key Highlights of the Market

• Growing focus on electric vehicle development is resulting in a need for specialized engineering expertise in powertrain and battery systems.
• Contemporary automobiles need unique engineering services in embedded systems and automotive software to improve their software content.
• Increasing demand for continuous innovation and research and development support is driving partnerships with specialized engineering service providers.
• Rising trend of platform sharing and modular vehicle architectures necessitates novel engineering and design optimization services.
• In 2024, designing accounted for 35% of the global market share due to the industry's focus on innovative aesthetics and functional designs.
• Based on location, the on-shore segment is projected to account for a market share of 55% in 2024 due to high convenience.
• North America accounted for 27% of market share in 2024, backed by digitalization of the automotive industry. 
• Asia Pacific is anticipated to hold a market share of 38.5% in 2024 with increasing outsourcing practices.

Market Attributes	Key Insights
Automotive Engineering Service Outsourcing Market Size (2024E)	US$ 108.58 Bn
Projected Market Value (2031F)	US$ 221 Bn
Global Market Growth Rate (CAGR 2024 to 2031)	10.7%
Historical Market Growth Rate (CAGR 2019 to 2023)	9.5%

North America Sees Steady Growth Amid Integration of 5G, AI, and IoT

The automotive engineering services outsourcing market in North America is a competitive and dynamic sector, accounting for 27% of the total share in 2024. Leading companies in the region, such as Altran, HCL Technologies, and Capgemini, provide a broad variety of technical services. These include system integration, prototyping, and the creation of autonomous vehicles.

Companies are utilizing novel technologies like AI, IoT, and 5G to streamline vehicle systems and improve operational efficiency. The region's market is also influenced by increasing demand for electric and autonomous vehicles, strict emission regulations, and the need for unique connectivity solutions. For instance,

• In April 2024, HCL Technologies partnered with a leading U.S.-based OEM to deliver next-generation connected vehicle platforms.

The market is anticipated to record a CAGR of 8.4% from 2024 to 2031, driven by continuous research and development investments and the launch of innovative solutions.

Presence of Skilled Workforce and Low-cost Labor to Fuel Demand in Asia Pacific

In 2024, the Asia Pacific automotive engineering service outsourcing market accounted for 38.5% of global share. This is due to the presence of key automobile OEMs and the region's competitive edge in outsourcing backed by low-cost labor and skilled workforce. The industry is anticipated to report a CAGR of 12% from 2024 to 2031.

• India, with a cost advantage of 15% to 26% over Europe and North America, is gaining popularity as a hub for outsourcing production and engineering services.

Asia Pacific is further witnessing a surge in electric and connected vehicle adoption. Leading companies like Hyundai and Tata Motors are constantly investing in research and development as well as digitalization. For instance,

• In February 2024, Tata Technologies, an India-based engineering service provider, secured a five-year infotainment development deal with BMW Group, highlighting Asia Pacific's significant role in global automotive innovation.

China and South Korea are leading in technological developments, accelerating the growth of autonomous and connected vehicle engineering services.

Automakers Seek Designing Services due to Trend for Platform-based Architectures

In 2024, designing services dominated the automotive engineering service outsourcing market, accounting for 35% share. This is due to the automotive industry's focus on innovative aesthetics and functional designs. OEMs are prioritizing novel design capabilities in the electric and autonomous vehicle markets to adapt to changing consumer preferences. For example,

• The importance of quick iterations and economical design procedures for preserving a competitive advantage is demonstrated by Ford's March 2024 investment in digital prototype technology.

Growth of this segment is also being fueled by increasing demand for lightweight materials, ergonomic interiors, and energy-efficient designs. Rise of platform-based vehicle architectures and shared mobility solutions is prompting OEMs to collaborate with ESPs. This strategy aims to optimize designs for versatility and cost efficiency in the era of connected, autonomous, shared, and electric vehicles.

Preference for Proximity and Streamlined Collaborations to Spur On-shore Location

In 2024, the on-shore segment accounted for 55% of the global automotive engineering service outsourcing market share. This indicates a preference for proximity and streamlined collaboration between OEMs and ESPs.

Demand for on-shore services is increasing in North America and Europe due to regulatory requirements, intellectual property concerns, and need for coordination in complex engineering projects. For instance,

• In August 2024, Ford announced an expansion of its on-shore research and development operations in Michigan. It aims to enhance vehicle design and testing capabilities, further highlighting the emphasis on local expertise.

On-shore ESO for automotive companies offers quick feedback, reduced cultural barriers, and better alignment with local standards. It is mainly driven by government incentives for innovation and job creation.

Market Introduction and Trend Analysis

Increasing complexity of contemporary automobiles, which calls for specialized knowledge, is driving growth in the global automotive engineering service outsourcing market. In 2024, automakers prioritized electric, autonomous, and connected vehicles, outsourcing engineering services to cut costs and expedite time-to-market. For instance,

• In February 2024, Bosch announced a partnership with a leading Asia-based automaker to develop next-generation embedded systems for electric vehicles.

Surging electric vehicle production has raised the need for novel engineering in powertrain and battery systems, as companies prioritize range optimization and energy efficiency. Rising platform sharing and modular vehicle architectures has surged the need for engineering services that offer design optimization and flexibility.

Rising software-defined vehicles necessitates expertise in AI, IoT, and big data analytics. Automakers are hence leveraging partnerships with engineering service providers like AVL and Bertrandt to maintain innovation and tackle evolving technological challenges.

Historical Growth and Course Ahead

The global ESO for automotive market recorded a CAGR of 9.5% in the historical period from 2019 to 2023. To handle the rising complexity of automobiles, including software engineering, end-to-end product development, and electric and autonomous technologies, the automotive industry is seeing a sharp increase in demand for engineering services providers.

While outsourcing engineering services to less expensive countries like China and India, manufacturers are concentrating on quality and cost reduction. As a result, they are able to focus on their primary skills, such as branding and design, while still producing work of excellent quality in other areas. Demand for ESO services is estimated to record a considerable CAGR of 10.7% during the forecast period between 2024 and 2031.

Market Growth Drivers

Trend of Platform Sharing and Modular Auto Architecture to Augment Demand

The popularity of platform sharing and modular vehicle architecture is altering the automotive ESO industry. Automakers are increasingly utilizing these strategies to decrease production costs, expedite development, and improve flexibility across various vehicle models. For example,

• Toyota's TNGA and Volkswagen's MQB platforms have significantly reduced costs by 20% by streamlining the production of multiple models with shared components.

Modular designs enable the integration of unique technologies like EV powertrains and autonomous systems, increasing the need for specialized engineering services. For instance,

• The significance of modularity is shown by Hyundai's statement in February 2024 to extend its Electric-Global Modular Platform (E-GMP) for next-generation EVs.

Engineering service providers are crucial in optimizing aerodynamics, weight reduction, and regulatory compliance in the automotive industry, promoting innovation and sustainability.

Focus on EV Development to Spur Demand for Specialized Engineering Services

The focus on Electric Vehicle (EV) development is boosting the need for specialized engineering expertise in powertrain and battery systems. Global automakers are focusing on sustainable mobility, requiring innovative engineering solutions for EV powertrains. These often include electric motors, inverters, and control systems.

Battery systems, crucial for range, safety, and performance, necessitate developments in thermal management, energy density, and charging efficiency. For instance,

• In May 2024, Tesla's US$ 3.6 Bn investment in Nevada Gigafactory aims to improve battery manufacturing, highlighting the industry's focus on EV-specific developments.
• BYD has integrated its Blade Battery technology into its latest EV lineup, focusing on safety and longevity.

Governments are setting ambitious EV adoption targets, prompting engineering service providers to support OEMs with unique designs, testing, and manufacturing technologies.

Market Restraining Factors

Complexity of Software and Delays in Outsourcing May Hinder Growth

The complexity of designing transmission systems, powertrains, and engine components demands novel expertise. Engineering service providers often struggle to match this, particularly in the transition to electric vehicles and hybrid systems.

OEMs mainly opt for in-house design to maintain control over proprietary technologies, causing delays in outsourcing and impacting market growth. Also, high service costs pose a barrier in price-sensitive markets.

The automotive sector's economic slowdown and fluctuating demand in 2023 and early 2024 have delayed investments in ESO. Technological limitations like interoperability in autonomous systems may hinder adoption, emphasizing the need for innovative, cost-effective, and specialized solutions.

Key Market Opportunities

High Demand for ADAS in Electric Vehicles Creates Prospects for Growth

The autonomous driving/ADAS segment is predicted to dominate the automotive engineering service outsourcing market in 2024. This is due to the rapid adoption of novel driver-assistance systems and ongoing autonomous driving developments. The market share for ADAS in 2024 is estimated to be 24%.

Growing demand for ADAS and autonomous vehicle technologies is prompting automakers to invest in novel sensor systems, AI algorithms, and machine learning for real-time decision-making. Engineering service providers are playing a key role in developing these systems, focusing on sensor integration, testing, and regulatory compliance. For example,

• Bosch and NVIDIA are partnering with OEMs for autonomous driving technology integration, with the NVIDIA Drive Hyperion 8 platform anticipated to boost the ADAS segment's growth in March 2024.

Increasing integration of ADAS features like lane-keeping assist and automatic emergency braking in consumer vehicles is boosting the need for specialized engineering services.

Adoption of Digital Technologies in Automotive Designing Propels Investments 

Rising adoption of digital technologies like AI, IoT, and big data analytics is revolutionizing automotive design. It is also improving efficiency and safety, as well as providing personalized driving experience. For instance,

• AI and machine learning are transforming autonomous driving, predictive maintenance, and smart vehicle integration, with the market anticipated to reach US$ 11.4 Bn by 2025.

Integration of IoT is enabling real-time vehicle diagnostics, improved connectivity, and seamless infotainment experiences. For example,

• In March 2024, BMW partnered with Intel and Mobileye to integrate AI and IoT technologies for advanced driver-assistance systems and autonomous driving solutions.

Big data analytics is revolutionizing vehicle design by processing vast data and enhancing performance and consumer preferences. The industry is likely to continue evolving with digital solutions.

Competitive Landscape for the Automotive Engineering Service Outsourcing Market

Companies that offer ESO services are extending their offerings and implementing growth tactics like product launches, mergers, partnerships, and collaborations into practice. They aim to increase market share, strengthen their competitive positioning, and deal with the industry's fragmentation.

By launching cutting-edge solutions, they want to attract a wider clientele and provide an all-encompassing defense against new online dangers. They are also raising the scope of their products by focusing on new markets and enhancing their services with sophisticated features for automotive.

Recent Industry Developments

• In December 2024, Ireland-based Accenture planned to acquire Germany-based software company AOX, enhancing its capabilities to aid automotive clients in developing software-defined vehicles faster. This demonstrates its commitment to strategic relationships.
• In October 2024, Germany-based BMW Group and India-based Tata Technologies formed BMW TechWorks India to drive automotive software and business IT innovations in the country. The joint venture will employ 100 employees at talent centers in Pune, Bengaluru, and Chennai.
• In October 2024, India-based HCLTech opened its first delivery center in Kerala, Infopark in Kochi. It aims to cater to growing engineering and research needs across industries like automotive, semiconductors, medical devices, and industrial technology.
• In September 2024, Japan-based Sumitomo Corporation and India-based tech firm Tech Mahindra formed SCTM Engineering to address the automotive industry's engineering shortage. This partnership aims to bridge cultural and business differences between Japan and India, assisting in design and development challenges.
• In August 2024, India-based L&T Technology Services signed a multi-year framework agreement with Shell. It aims to provide integrated engineering design, procurement, digital engineering, data governance, and digital project management consultancy for Shell's global assets.
• In May 2024, the Philippine Overseas Construction Board, Philippine Contractors Accreditation Board, and Construction Manpower Development Foundation launched a joint business mission to Sydney, Australia. It is focusing on construction services and architecture as well as engineering outsourcing.

Automotive Engineering Service Outsourcing Market Report Scope

Attributes	Details
Forecast Period	2024 to 2031
Historical Data Available for	2019 to 2023
Market Analysis	US$ Billion for Value
Key Regions Covered	North America Europe East Asia South Asia and Oceania Middle East and Africa Latin America
Key Market Segments Covered	Service Application Location   Region
Key Companies Profiled in the Report	ARRK Product Development Group Ltd Altair Engineering Inc.  ASAP Holding GmbH AVL List GmbH  Bertrandt AG  EDAG Group ESG Elektroniksystem- und Logistik-GmbH  FEV Group GmbH P3 group GmbH  RLE International Group
Report Coverage	Market Forecast and Trends Company Share Analysis Competitive Intelligence DROT Analysis Market Dynamics and Challenges Strategic Growth Initiatives
Customization and Pricing	Available upon request

Automotive Engineering Service Outsourcing Market Segmentation

By Service

• Designing
• Prototyping
• System Integration 
• Testing
• Others

By Application  

• Autonomous Driving/ADAS
• Body and Chassis
• Powertrain and After-treatment
• Infotainment and Connectivity
• Others

By Location

• On-shore
• Off-shore

By Region

• North America
• Europe
• East Asia
• South Asia and Oceania
• Latin America
• The Middle East and Africa

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