Automotive Engineering Services Outsourcing Market Size, Share & Trends Report

Automotive Engineering Services Outsourcing Market Size, Share & Trends Analysis Report By Application, By Service (Designing, Prototyping), By Location (On-shore, Off-shore), And Segment Forecasts, 2020 - 2027

  • Published Date: May, 2020
  • Base Year for Estimate: 2019
  • Report ID: GVR-2-68038-635-6
  • Format: Electronic (PDF)
  • Historical Data: 2016 - 2018
  • Number of Pages: 171

Report Overview

The automotive engineering services outsourcing market size was estimated at USD 65.5 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 27.8% from 2020 to 2027. Growing technical capabilities of Engineering Service Providers (ESPs) to offer R&D and product innovation in their offerings for vehicle positioning, connected cars, and guidance systems are anticipated to drive the market. Furthermore, the abrupt shift in preferences of OEMs for digitized solutions over mechanical and core assistance is expected to contribute to the market’s overall revenue.

U.S. automotive Engineering Services Outsourcing market size

Increasing emphasis of the automotive industry on manufacturing automobiles with five significant trends, namely, Electrified, Autonomous, Shared, Connected, and Yearly updated ('EASCY') is anticipated to provide opportunities to the ESO market players. Engineering support providers are focused on offering solutions supporting these trends so as to provide a competitive edge to their clients. For instance, Altran announced the release of its fronthaul framework that is deployed on Intel Field Programmable Gate Arrays (FPGAs) and will assist network equipment as well as wireless carriers’ manufacturers for aggregating large-scale 5G fronthaul deployment.

De-verticalization, which is the process of desegregating services and functions from a vertically integrated business, has attained traction over the last two decades. In case of de-verticalization, OEMs transfer their designing and product manufacturing aspects to the ESPs. The automotive services outsourcing industry has majorly benefitted from this phenomenon as it has helped in creating a more global-scale supply base with newly established assembly plants, thereby resulting in the geographic expansion of the ESO companies.

Furthermore, modular outsourcing has also gained prominence as the manufacturers are demanding standardized interfaces incorporated with self-contained functional units in their automobiles. The advent of modular designs has enabled the automotive OEMs to outsource complicated self-contained modules in addition to the procurement of services for simpler vehicle parts.

However, instead of procuring services from ESPs, certain OEMs emphasize on fabricating their end-products in-house at their main centers or captive destinations due to the complexity of engine design, powertrain design, and transmission systems. In fact, the rising concerns around the disclosure of intricate designs of automobiles and intellectual property rights have compelled the OEMs to establish their own manufacturing units at off-shore locations. Transformation of business models wherein the manufacturers are now designing the product in-house is anticipated to be a roadblock to the otherwise growing market.

Application Insights

Based on application, the market is divided into autonomous driving/ADAS, body & chassis, powertrain and after-treatment, infotainment & connectivity, and others. The powertrain and after-treatment segment accounted for the highest revenue share in 2019 and is forecasted to continue leading the market over the next seven years. The radical changes occurring in the automotive sector, specifically in the Internal Combustion (IC) engines in light of the fuel economy and carbon emission reduction, contemplate the automotive OEMs to opt for enhanced green powertrain technologies, including powertrain electrification. The substantial investments made by OEMs in the powertrain technologies is expected to contribute to the segment growth in the coming years.

Body & chassis segment also accounts for a significant revenue share owing to the high preference for light-weight chassis that results in lesser fuel emission. Furthermore, the predominant rise in the production of green vehicles to comply with minimal emission norms is anticipated to contribute to market growth. In addition, increasing emphasis on the safety of vehicle structure is expected to fuel the demand for chassis systems over the next seven years.

The infotainment & connectivity segment is anticipated to witness the fastest growth at a CAGR of over 31% from 2020 to 2027. Connected cars are gaining prominence, thereby providing opportunities for automotive ESO companies. Various outsourcing companies are offering advanced connectivity features to meet the demand for infotainment and connectivity services. For instance, Harman International launched the HARMAN Ignite Marketplace, a cloud-based solution and applications network, which offers an extensive portfolio including voice assistants, media content, messaging applications, and various other point-of-interest solutions.

Service Insights

Based on service, the market is divided into designing, prototyping, system integration, testing, and others. The designing segment is anticipated to register the highest CAGR of over 29% from 2020 to 2027. Manufacturers are emphasizing on creating automobiles with elongated and spacious interiors to balance the power-to-weight ratios. Although OEMs usually do not outsource designing solutions that are key to vehicle performance, such as electronics and vehicle engine design, mechanical design services are off-shored to developing countries.

Countries including China and India have greatly benefitted from outsourcing their design services that have a high demand from OEMs in Germany, U.S., and Japan. The automotive manufacturers are heavily investing in designing R&D and collaborating with the ESO companies in accordance with assembling intricate automobile features for their end-customers. The rising demand for automobiles with cosmetic LED technology, refined aerodynamics, and lightweight body materials is anticipated to propel the growth of the designing segment.

The prototyping segment held the greatest revenue share in 2019 and is forecasted to continue leading the automotive engineering services outsourcing market over the next seven years. The development of numerous prototypes before finalizing designs and processing mass production incurs exorbitant cost. Thus, OEMs are associating with ESO companies for product development at incubation centers established by outsourcing companies or in partnership with OEMs at various off-shore locations. Furthermore, 3D modeling and printing for rapid prototyping of automobiles in the pre-manufacturing stage also propel the growth of this segment.

Location Insights

Based on location, the market has been classified into on-shore and off-shore. While on-shore outsourcing refers to delivering services to the OEMs operating within the legal boundaries, the off-shore outsourcing states the outsourcing assistance to the clients based in foreign locations. The on-shore segment held the highest revenue share in 2019. It is anticipated to retain its leading position as the automobile ESO providers are clustered around the OEMs in developed nations, especially for designing, prototyping, and other specialized services.

Furthermore, outsourcing from foreign-based ESPs imposes security risks as most of the countries have a reputation of not complying with IP protection copyright laws. Also, the rapid deployment of self-serve solutions and automation technologies has propelled the automobile OEMs to procure assistance from on-shore engineering service companies. Owing to the major concerns regarding language barriers, imposed regulations, reliability, and communication in different time zones, OEMs prefer ESPs based in their home locations.

Global automotive ESO market share

On the other hand, the OEMs leverage off-shore outsourcing from low-cost countries, such as China and India. The engineering service providers are highly investing in establishing delivery centers in such locations due to the low costs and availability of highly skilled professionals. However, the stringent regulatory norms with respect to political scenario, varied industry landscape, and preferred structure of captive centers might create resistance in effectively utilizing off-shore resources.

Regional Insights

South America is expected to register the fastest CAGR of over 32% from 2020 to 2027. This growth is attributed to the OEMs based in Brazil, Argentina, and Colombia, working with the South American government to develop hybrid and electric vehicles. Furthermore, increasing budget allocations by the government for enhancing the transport infrastructure across the region is expected to contribute to the market growth throughout the forecast period.

Asia Pacific market accounted for the highest revenue share in 2019 and is expected to continue its dominance over the next seven years. Owing to the availability of cost-effective labor in countries, such as Philippines, India, and China, major automobile OEMs are outsourcing manufacturing as well as allied activities to these destinations. As a result, automotive ESO providers are relocating their bases in the APAC region. Japan has emerged as one of the largest car manufacturers posing growth opportunities for the ESPs in APAC. The government of Japan aims to increase the sale of next-generation vehicles by 50-70% till 2030, out of which, Hybrid Electric Vehicles (HEVs) should account for 30-40%, whereas Plug-in Hybrid Electric Vehicles (PHEVs) and Battery Electric Vehicles (BEVs) comprising a share of 20-30%.

Europe is likely to have a significant growth in the future as the region is home to major tier 1 automobile manufacturers like Daimler, Bosch, and Volkswagen. Moreover, increased investments in the electrification of vehicles and autonomous technology will also drive the regional market. ESPs operating in Europe are offering technologically upgraded solutions to their end-customers, providing them a competitive edge in the market. For instance, recently, Kistler Instrumente AG added a variant of wheel force measurement system, RoaDyn S6GT, which offers reliable and flexible wheel load measurements for ultra-heavy commercial vehicles and off-highway machines.

Key Companies & Market Share Insights

Industry participants offer customized outsourcing solutions to the OEMs with an aim to widen their capabilities and client portfolio across their operating locations. In May 2019, Alten collaborated with Syrphus GmbH, which designs unmanned autonomous vehicles and aircraft as well as offers services for multicopter and manned aviation. Alten assisted the company’s team by offering stress calculation, micromechanics, computer-aided design, software and hardware development, electrical installation, and testing services to develop hybrid aircraft with vertical landing and take-off as well as horizontal flight capabilities.

In July 2018, IAV GmbH entered into a strategic partnership with vehicle component provider Ziehl-Abegg Automotive GmbH & Co. KG and body manufacturer Tassima AG for electrifying double-decker tourist buses. Companies have also undertaken M&A activities for service portfolio expansion. Altran acquired Aricent, a global integrated design and engineering services provider, with an aim to attain a strong foothold in the automobile and aerospace domain. Some of the prominent players in the Automotive ESO market include:

  • Alten GmbH

  • Altran Technologies S.A.

  • HORIBA, Ltd.

  • Bertrandt

  • AVL List GmbH

Automotive Engineering Services Outsourcing (ESO) Market Report Scope

Report Attribute

Details

Market size value in 2020

USD 84.21 billion

Revenue forecast in 2027

USD 469.6 billion

Growth Rate

CAGR of 27.8% from 2020 to 2027

Base year for estimation

2019

Historical data

2016 - 2018

Forecast period

2020 - 2027

Quantitative units

Revenue in USD million/billion and CAGR from 2020 to 2027

Report coverage

Revenue forecast, company ranking, competitive landscape, growth factors, and trends

Segments covered

Application, service, location, and region

Regional scope

North America; Europe; Asia Pacific; South America; and MEA

Country scope

U.S.; Canada; Mexico; U.K.; Germany; France; China; Japan; India; Brazil

Key companies profiled

Alten GmbH; Altran Technologies S.A.; HORIBA, Ltd.; Bertrandt; and AVL List GmbH

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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 2020 to 2027. For the purpose of this report, Grand View Research 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.

    • Asia Pacific

      • China

      • India

      • Japan

    • South America

      • Brazil

    • Middle East & Africa

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