In 2016 and 2017, the automotive industry invested more than €113 billion in research and development (R&D) globally. In terms of geographies, Europe received the biggest share of spend, with €53 billion, trailed closely by Asia (€42 billion), and with the Americas a distant third (€18 billion). The automotive technology shift towards electrification, connected services, autonomous driving, and shared vehicles is driving R&D, and some of the current profit warnings of large automotive players can be attributed to the heavy investments in technology. In addition, tighter regulations have placed considerable pressure on the “bread and butter” business of automotive engineering, such as powertrain calibration, testing, and homologation. Consequently, many programs have been delayed. With original equipment manufacturers’ internal engineering capacity inflexible and strained to capacity, R&D outsourcing is becoming an increasingly important way to execute technology programs in a timely manner, while managing the workload of the internal engineering resources.
In the outsourced engineering market, specialized engineering services providers (ESPs) have built up massive competences and capacity to support their clients’ needs.
Based on market trends, the ESPs should be thriving. Instead, our analysis shows that while revenues are increasing (by between 3 percent and 5 percent annually), profit margins at many ESPs are declining. Why?
Authors
Simon Schnurrer
Johannes Berking
Oliver Wyman Ideas App
