AUTOMOTIVE ENGINEERING SERVICES MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2024 - 2031)

Automotive Engineering Services Market Size and Trends

The Global Automotive Engineering Services Market is estimated to be valued at USD 270.21 Bn in 2024 and is expected to reach USD 450.44 Bn by 2031, exhibiting a compound annual growth rate (CAGR) of 7.6% from 2024 to 2031.

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Automotive engineering services help automotive manufacturers and suppliers in developing and testing new vehicle models before production. These services play a crucial role in improving vehicle design, reducing costs, and bringing innovative products to market. The industry is poised to witness a significant growth in the coming years owing to factors such as rise in vehicle production and sales globally, stringent emission and safety regulations, increasing consumer demand for fuel-efficient and high-performance vehicles and developments in autonomous and electric vehicle technologies. Moreover, the increasing adoption of advanced technologies, such as VR/AR, 3D printing, AI, and IoT by automotive OEMs and suppliers, is also expected to drive the demand for automotive engineering services. However, high investment costs associated with automotive R&D activities may hamper the market growth to some extent over the next few years.

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Insights, By Vehicle Type - Convenience and Comfort Drives Demand for Passenger Cars

By vehicle type, the passenger cars segment is expected to contribute the highest share of 53.2% in 2024 owing to convenience and comfort. Passenger cars offer privacy and flexibility of transportation specially designed for a family. Their designs focus on providing spacious interiors, luxury features, and enhanced handling for stress-free travel. Additionally, factors like growing urbanization and dual-income households have increased dependency on personal vehicles for daily commutes and leisure trips. This plays a major role in higher production and sales of passenger cars compared to commercial vehicles.

Insights, By Service Type - Prototyping Leads Due to Importance of Concept Validation

By service type, the prototyping segment is expected to contribute 44.1% of the market share in 2024 owing to the criticality of concept validation in automotive design. Prototyping services help automakers to test new vehicle concepts at an early stage and make necessary changes before committing significant investments. This saves time and cost compared to identifying issues at later phases of product development. It also allows manufacturers to showcase prototype models and gather customer feedback, which is crucial for understanding market requirements.

Insights, By Location Type - Off-shore services see higher demand due to cost advantages

By location type, the off-shore segment is expected to contribute 59.3% of the market share in 2024 due to substantial cost benefits. Countries, such as India, China, Mexico, and Eastern Europe, offer automotive engineering talent at considerably lower wages compared to developed automotive hubs. Additionally, favorable government policies stimulate growth of technical capabilities locally. This makes off-shore locations an attractive proposition, especially for routine design validation, testing, and program management activities. The significant costs savings help companies reallocate budgets for other value-added services, thus driving increased outsourcing of work beyond national boundaries.

Regional Insights

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Dominating Region: Europe

Europe is a dominant market and is expected to account for 44.1% of the market share in 2024. The growth can be attributed to the strong presence of leading automakers along with large automotive supplier base. The players are focusing on creating innovative designs and hands-free driving technology. Moreover, investments and funding boosts automotive productivity that creates a thriving ecosystem for engineering services. Additionally, government support for R&D initiatives and technology adoption supports growth.

Fastest-Growing Region: Asia Pacific

The Asia Pacific region exhibits the fastest growth and is expected to account for 23.4% market share in 2024. The growth is attributed due to the rising automobile production in major economies such as China, India, and Japan. Aggressive expansion strategies by global players to leverage lower costs along with growing consumer demand for advanced vehicles are driving market expansion.

Automotive Engineering Services Market Outlook for Key Countries

Significant Investments and Launch of New Models in the U.S.

The automotive engineering services industry in the U.S. is led by major vehicle manufacturers working closely with engineering firms on new mobility solutions and auto technologies. Companies, such as Lockheed Martin and Magna, contribute significantly to progress. Many major auto brands have accelerated plans to electrify their model lineups. Ford, GM, and others have committed billions of dollars in investments towards EV development and manufacturing. As automakers pivot to electric, it is generating heavy demand for engineering expertise in areas like battery technologies, powertrain systems, and vehicle integration.

China Government’s Initiatives Accelerate Investments by International Players

The market growth in China is underpinned by government initiatives pushing auto innovation and increasing investments by international suppliers in the country. Players like FEV China play a pivotal role. China automotive market has seen tremendous growth in recent years, driven by rising incomes and urbanization. As vehicle ownership has increased, so too has demand for advanced automotive technologies that improve safety, connectivity, and efficiency. This has led OEMs to outsource more engineering work to specialist service providers.

Germany’s Transition Towards Electric Vehicles

Germany continues to lead with engineering expertise from Daimler and others. Suppliers including IAV and Bertrandt are intensely engaged in cutting-edge automotive R&D programs. The rapid transition towards electric vehicles and digital technologies is reshaping automotive engineering demands in Germany. Automakers are heavily investing in developing new EV platforms and automated driving systems to comply with tightening emissions regulations and changing consumer preferences. This has led to growing needs for testing, validation, and certification services across electrical architecture, power electronics, battery systems, and automotive software.

Indian Automotive Industry is Transforming Rapidly

India automotive engineering services market is poised for exponential growth in line with rising production capacity expansions by companies including Tata Motors and Mahindra. Indian automotive industry has been rapidly transforming in recent years to meet changing consumer demands and environmental regulations. Automakers in India have been shifting their design and development activities in-house or partnering with local engineering service providers to accelerate product development cycles.

Market Concentration and Competitive Landscape

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Top Strategies Followed by Automotive Engineering Services Market Players

• Established Players: Established players focus heavily on research and development to innovate new products. Major companies like Bosch, Continental, and Denso invest over 5% of their annual revenues in R&D. They partner with automakers and each other to develop key technologies like electric powertrains, autonomous driving systems, and vehicle connectivity solutions. These alliances help them gain critical insights into future mobility trends and solidify their position with OEMs.
• Mid-level Players: Mid-level players stand out by delivering high-quality yet affordable solutions. Companies like P3 Group focus on cost-effective engineering services and independent testing. They form partnerships with smaller firms to strengthen capabilities in newer areas like advanced driver assistance systems (ADAS) and battery technologies. Such collaborations help expand service portfolios and target price-sensitive automakers.
• Small Players: Small players find success through niche specialization. For instance, AVL excels in electric powertrain engineering and holds multiple patents. Lambda Engineering focuses on prototyping and testing for electric vehicles and advanced driver assistance systems. They leverage modern technologies and local partnerships to establish themselves and gain clients.

Emerging Startups in the Automotive Engineering Services Market

• Innovation- Several startups are developing innovative technologies impacting the industry. For example, Anthropic develops AI safety solutions to enable safe autonomous driving. Oxrs develops smart sensor technologies for advanced driver monitoring systems. Their technologies could transform critical vehicle systems and help achieve fully autonomous vehicles sooner.
• Sustainability- Sustainability-focused startups also contribute importantly. Valencell develops biometric sensors enabling precisely tuned active safety and emissions control. This helps reduce environmental impact. Recolte collects and recycles lithium-ion batteries from EVs securely and provides battery-as-a-service. Their contributions advance the circular economy goals of automakers.
• Collaborations- Many startups fill unique market needs through collaborations. For instance, Otonomo partners with major automakers and municipalities to apply its open platform for car data applications. This boosts data and software-based services surrounding connectivity. Verkor works with automakers, suppliers, and industrial groups to build sustainable and affordable battery gigafactories in Europe.

Key Developments:

• In June 2024, Volkswagen, a Germany-based automobile manufacturer, entered a USD 5 billion software partnership with the U.S. electric vehicle start-up, Rivian, to address delays in its in-house software development and accelerate its EV initiatives.
• In June 2024, Cognizant Technology Solutions, an Indian-American multinational IT consulting organization, agreed to acquire Belcan, a digital engineering firm specializing in aerospace, defense, space, and automotive sectors, for approximately USD 1.3 billion. This move aimed to enhance Cognizant's presence in these industries and expand its engineering capabilities.
• In October 2023, Foxconn, an electronic manufacturing giant, partnered with Nvidia to build "AI factories" aimed at developing software for self-driving cars, highlighting the convergence of technology and automotive industries.
• In early 2023, Mercedes-Benz received authorization to pilot its Level 3 autonomous driving system, Drive Pilot, in Nevada and California in the U.S. This system allows for hands-free driving under certain conditions, marking a significant step toward higher levels of vehicle automation.

Key Takeaways from Analyst

• The automotive engineering services market is expected to witness steady growth in the coming years. The demand for fuel-efficient and eco-friendly vehicles is driving OEMs to outsource engineering work to specialist service providers. Stringent emission norms worldwide are prompting automakers to develop hybrid and electric vehicles, benefiting engineering consultancies. Reduction in vehicle development timelines is another key factor fueling the adoption of engineering services. However, the market also faces challenges from economic uncertainties and geopolitical tensions impacting automobile sales. Constant pressure on OEMs to lower costs acts as a restraint. Data security and privacy concerns related to connected vehicles could hamper market prospects. Nonetheless, the emergence of self-driving cars represents a major long-term opportunity for engineering consultants to support the development of autonomous driving technologies.

Market Report Scope

Market Dynamics

Market Driver - Focus on Developing Connected and Autonomous Vehicles

The automotive industry has been placing increased focus on developing connected and autonomous vehicles in order to enhance the driving experience for customers. Car manufacturers recognize that the future will be defined by vehicles that can drive themselves and connect with other cars on the road as well as the infrastructure around them. This focus on connectivity and automation presents a massive business opportunity but also requires extensive research and development investments. Developing self-driving capabilities involves leveraging various technologies such as sensors, radar systems, cameras to facilitate vehicle navigation without human intervention. This allows safer transportation but the engineering of such advanced driver assistance systems and integrating them with existing vehicle software is challenging.

Market Challenge - High Cost of Technology Implementation

The automotive engineering services market is facing significant challenge due to high cost associated with the implementation of new technologies. Original equipment manufacturers and tier 1 suppliers require advanced engineering capabilities to develop autonomous, connected, electric, and shared mobility solutions. However, building internal infrastructure and expertise for new technologies such as autonomous driving, vehicle connectivity, advanced driver assistance systems, EV batteries, and fuel cells require massive capital investment. Transitioning to newer technologies also require re-training existing workforce which further increases operating expenses. Due to expensive nature of technology upgrades, many small and medium sized component manufacturers find it difficult to individually invest in research and development of novel automotive technologies.

Market Opportunity - Demand for Engineering Services from Tier II and Tier III Suppliers for Market Expansion

The automotive engineering services market is presented with tremendous opportunity in the form of growing demand from tier II and tier III suppliers. As vehicle architecture is becoming more complex with integrated electronics, software, and new mobility solutions, component original equipment manufacturers are required to develop application-specific innovations. However, internal capabilities of small and medium suppliers remain limited for such complex product development projects. In order to gain orders from global OEMs and expand markets overseas, these smaller suppliers increasingly outsource product design, testing, validation and certification activities to specialized engineering consultancies. Emerging technologies also drive many Tier II and III firms to engage external expertise. This translates into greater outsourcing of engineering work and projected growth of the automotive engineering services industry.

Key Stakeholders of Market

What Does Growth in the Automotive Engineering Services Industry mean for Different Stakeholders?

The automotive engineering services industry includes several players and offers multiple opportunities based on their operational scope and diligence. The table below illustrates and interprets growth aspects for different stakeholders involved.

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Market Segmentation

• Vehicle Type Insights (Revenue, USD Bn, 2019 - 2031)
• • Passenger Cars
  • Commercial Vehicles
• Service Type Insights (Revenue, USD Bn, 2019 - 2031)
• • Prototyping
  • Designing
  • System Integration
  • Testing
• Location Type Insights (Revenue, USD Bn, 2019 - 2031)
• • Off-shore
  • On-shore
•  Application Insights (Revenue, USD Bn, 2019 - 2031)
• • ADAS
  • Safety Chassis
  • Connectivity Services
  • Others
• Regional Insights (Revenue, USD Bn, 2019 - 2031)
• • North America
    • U.S.
    • Canada
  • Latin America
    • Brazil
    • Argentina
    • Mexico
    • Rest of Latin America
  • Europe
    • Germany
    • U.K.
    • Spain
    • France
    • Italy
    • Russia
    • Rest of Europe
  • Asia Pacific
    • China
    • India
    • Japan
    • Australia
    • South Korea
    • ASEAN
    • Rest of Asia Pacific
  • Middle East
    • GCC Countries
    • Israel
    • Rest of Middle East
  • Africa
    • South Africa
    • North Africa
    • Central Africa
• Key Players Insights
• • Capgemini SE
  • IAV GmbH
  • Tech Mahindra Ltd
  • AKKA Technologies Group
  • Harman International Industries Inc
  • ALTEN Cresttek Engineering Solutions Pvt Ltd
  • Fev Europe GmbH
  • EDAG Engineering GmbH
  • Continental AG
  • Altair Engineering Inc
  • Tata Technologies Ltd