Market Scenario 

Engineering services outsourcing in automotive market was valued at US$ 59.43 billion in 2023 and is projected to hit the market valuation of US$ 132.20 billion by 2032 at a CAGR of 9.72% during the forecast period 2024–2032.

The expansion of the automotive sector is encouraging a rise in the outsourcing of engineering services due to the increasing advancement of technology as well as the challenges facing the development of modern vehicles. Today, the automotive companies are under a lot of stress on many fronts to come up with inventions regarding electric mobility, autonomous driving, and connectivity. In an attempt to meet such high demand, over 70% of the top automotive OEMs have collaborated with ESO providers to gain access to the necessary knowledge and accelerate the product development process. As a result of such cooperation, more than 200 new vehicle models have been launched all over the world in 2023, thus illustrating the impact that engineering services outsourcing in automotive market holds in the industry.

Automotive companies are integrating electric powertrains technology, advanced driver assistance systems (ADAS), and connected vehicle technologies into their critical application and boosting their engineering service outsourcing activity. Another strong growth driver is the attention to electric vehicles—in 2023, global EV sales reached a record 14.2 million. According to several estimates, the worldwide stock of vehicles fitted with L2 and higher vehicle automation features surpassed 6 million units as well that added pressure on engineering capabilities. More than 250 million cars connected cars were on the roads in 2023 and ESO has been critical in its connected cars development and further spread that requires significant investment in software, cybersecurity and data analysis.

Tier 1 suppliers, original equipment manufacturers (OEMs), and mobility companies are the leading beneficiaries of the engineering services outsourcing in automotive market. A more credible estimate states that Tier 1 suppliers have added more than 60% of the outsourced engineering projects in 2023 focusing towards battery, sensor, and infotainment system integration. Furthermore, electrical scooter and drone manufacturers increased their dependence on OES partners by over 30% to improve the speed of innovation and remain competitive. Undoubtedly, these trends highlight the contribution of ESO towards improving efficiency, reducing costs and promoting innovations in the automotive sector. 

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Market Dynamics 

Driver: Accelerated Demand for Electric Vehicles Requiring Specialized Engineering Expertise

The global transition to sustainable mode of transport has resulted into an upsurge in the demand for electric vehicles (EVs) and consequently more engineering skills are needed. In 2023, global EV sales reached 14.2 million units, which is an increase historically. China sold more than 9.05 million units; Europe and the United States engineering services outsourcing in automotive market sold 3 million and 1.2 million units respectively. The increase is attributed to regulatory policies, changes in battery technology, and increase in environmental awareness among the people. 

To construct an EV, advanced engineering solutions are necessary to address several issues, including battery management systems, power electronics, and electric drivetrains. Furthermore, 75 kWh of battery capacity was reported on new EVs in 2023, highlighting the need for advanced thermal control and energy efficiency technologies. Over 30,000 fast charging stations were built worldwide and hence integration with vehicle systems was required for best performance. To promote these, vehicle manufacturers have increasingly started to outsource engineering services for automotive companies that have the necessary skill and experience.

The beginning of 2023 saw huge demand in the United States engineering services outsourcing in automotive market, with over 50,000 engineers required for EV projects around the world, with particularly high demand in OEMs among the 100 new models. Moreover, outsourcing engineering services for EV (Electric Vehicles) has helped bring in a staggering amount of over 100 new models into production and has allowed businesses to pivot into offering battery designs and energy management systems. The OEM (Original Equipment Manufacturer) and ESO (Engineering Services Outsourcing) link has not only fostered the rapid growth of manufacturing but has also improved the connectivity and wireless charging features for grid inputs and electric vehicles enhancing the partnership model.

Trend: Growing Collaboration Between OEMs and ESO Providers for Innovation

The year 2023 in the engineering services outsourcing in automotive market saw a warming trend in the relationships between original equipment manufacturers (OEMs) and engineering services outsourcing (ESO) for the purpose of enhancing creativity in the automotive industry. Reports indicate that no less than 60 such collaborations and alliances were inked in the international arena targeting new technologies such as autonomous driving, connectivity, and electrification. For instance, a European OEM established a partnership with an ESO firm in the development of an autonomous system of its next generation which saw the deployment of one thousand autonomous test cars. Indeed, these collaborations are aimed at shortening development cycles and sourcing for talent. In 2023, the worldwide payment outsourcing service providers had in their employment over 120,000 automotive engineers skilled in artificial intelligence, machine learning, and cybersecurity. Joint innovation centers became a common phenomenon, with more than 40 centers set up across the globe. Integration of joint innovation centers enables co-creation and development in an agile manner hence increasing the speed to market for new features to OEMs.

As a result of these collaborations in the engineering services outsourcing in automotive market, more than 500 new patents were filed in the field of automotive technology. Also, these partnerships made it possible to penetrate new markets, as the ESOs providers gave the OEMs opportunities in the local regions such as Asia and South America. 

Challenge: Data Security Concerns When Sharing Sensitive Engineering Information Externally

With original equipment manufacturers forming more partnerships with engineering service outsourcing firms, the importance of protecting data has grown to be a major issue in 2023. Sharing sensitive engineering information has the risk of patent infringement, industrial espionage, and breaking regulations. In 2023, the automotive market suffered from more than 250 cyber-attacks that aimed to steal confidential data, thus demonstrating the risk that comes with peripheral data sharing in the engineering services outsourcing in automotive market. In one case, a major supplier of a major OEM lost a huge amount of money and reputation because its confidential design files were published to the outside world through a development program outsourcing.

The modern automobiles consisting both software and hardware elements are in fact much too complex and too much data of the enterprise has to be shared. According to recent findings, a connected car was capable of producing an average of around 25 gigabytes of information on an hourly basis in 2023, this goes on to demonstrate the scale of data that required protection. The situation has affected regulations which have become more stringent on protection of data with penalties for breaches resulting in fines of up to $50 million under the General Data Protection Regulation as well as the California Consumer Privacy Act.

To reduce these risks in the engineering services outsourcing in automotive market, the OEMs and ESO providers spent more than $10 billion on cybersecurity solutions in 2023. Some strategies are end-to-end encryption, secure transmission protocols, and strong access control. Furthermore, over 80% of ESO contracts now have all encompassing data protection provisions and compliance obligations. However, despite these moves, maintaining the integrity of the data is still a major challenge and because of that, constant vigilance and better protective measures are needed in engineering collaborations.

Segmental Analysis 

By Service Type 

By 2023, the design and engineering segment of the engineering services outsourcing in automotive market has reported a market share of more than 35%. This segment’s dominance is boosted by the continuous demand for invention and creation from the automotive sector since they work on tighter regulations. The Global Automotive ESO Report estimates suggests that in the global automotive design and engineering services was valued US$ 45 billion in 2023. Wherein, more than US$ 21 billion came from the outsourcing segment. The increase in EV’s (electric vehicles) sales, which over 14.2 million EV’s were sold in 2023, instigated the need for great resources in design and engineering to develop new platforms and technologies. In 2023, more than 800 new electric and hybrid vehicles were launched across the globe which shows how serious the vehicle design and engineering has been.

The desire for engineering and design services is paramount for the evolution of the automobile manufacturing industry due to the fast technological growth. According to 2023, the world’s car makers in the engineering services outsourcing in automotive market invested approximately $130 billion in research and development, of which a large part was for external design and engineering services. Modern times have also heralded an increase in the number of modern-day cars samples, which have an average of 100 million lines of code, thus a need for specific software engineers. In addition, the number of cars equipped with advanced driver-assistance systems (ADAS) grew markedly, reaching 70 million in 2023 and greatly raised demands for engineering assistance.

There are several reasons that help to explain why fierce competition exists in the sectors of design and engineering services. These include a worldwide shortage of skilled engineers and the cost advantages of outsourcing. The World Economic Forum stated in 2023, over 1.5 million engineering jobs remained vacant across the globe. Outsourcing enables the country’s automakers to tap into more than 500 thousand engineers currently working in the automotive ESOs. In addition, over 500 co-development agreements were signed in 2023 between ESO suppliers and car manufacturers which facilitated innovation and reduced the time for bringing a product into the market. 

By Pricing Model 

In 2023, the staff augmentation (Full Time Equivalent or FTE based) pricing model has started reaping great benefits in the engineering services outsourcing in automotive market. The segment controls almost 39% market share. This model basically allows greater flexibility for automotive companies in growing their engineering teams by engaging external professionals for the projects on full time. According to market analysis, more than 70,000 FTE positions were off shored in automotive sector this year which shows strong tendency for this model. The market of staff augmentation in the automotive ESO sector has been estimated worth $23.17 billion in 2023, which serves to enhance its interest further.

Such models are useful in situations where deploying a product into the market is vital. By progressively constructing the teams with seasoned engineers, the automotive manufacturers are able to meet the timelines for project completion. There was a 1.6 million unfulfilled automotive engineers position that made staff augmentation an attractive alternative. Global staff augmentation, on the other hand, significantly decreased their average time to contact these professionals to about two weeks, as opposed to the previous six months. In regard to this, the staffing budgets for automakers increased by $5 billion in an year. 

Efficiency, flexibility, and worldwide workers are key components that stand out supporting the growing trend of staff augmentation model in the engineering services outsourcing in automotive market. In 2023, the average operational cost that automotive businesses were able to cut down on using staff augmentation ranged between $15 million. On top of that, staff augmentation service sourcing was employed across more than 3,500 automotive projects in the year 2023. This model eases the end-user as there is an undiscutably lack of down time due to staffing problems and allows for the continuous growth of the project. 

By Application 

Powertrain component segment in the engineering outsourcing services in the automotive market contributes over 34.28% revenue. The global powertrain engineering services outsourcing in automotive market valuation has increased to about $59.43 billion in 2023 since the market’s focus was concentrated towards powertrain development with respect to environmentally friendly and energy-efficient technologies. The sharp rise in demand can be attributed to the international markets’ focus on hybrid and electric cars. In 2023, over 25 million of such vehicles have been manufactured. As a result, there has been a growing need for skill and techniques to build a complete powertrain that conforms to the emerging performance and efficiency requirements.

Demand for specific powertrain components in the engineering services outsourcing in automotive market is also influenced by anti-emission regulations and changing consumer tastes. To reduce carbon emissions, over 20 countries have proposed a ban on the sale of new internal combustion engine cars by 2035. In this regard, major vehicle manufacturers spent about $80 billion on developing electric powertrains in 2022. The progress in battery technology, including battery energy density average of 300 Wh/kg makes it easier to build electric cars and in return, bodes well for the demand of powertrain engineering services. Electric vehicles in important markets such as China and Europe sold over 12 million units in 2023.

Some of the macroeconomic factors that can be attributed to this supremacy are the high subsidies given by governments for the manufacture of electric vehicles amounting to $15 billion around the world and growing fuel prices such as crude oil which is forecast to rise $100 a barrel this year. Improving microeconomic factors relate to the consumer demand for fuel efficient vehicles and the advanced nature of powertrains. In 2023, the average spent on every new powertrain component development project was around US$ 5 million. Furthermore, more than 1,000 new powertrain patents were registered in the same year, which is an indication that there is a considerable amount of investment and innovation is ongoing in the ESO industry. 

By Vehicle Type 

Passenger vehicles have become the leading source of revenue for engineering services outsourcing in automotive market as they control over 50.71% revenue share. The global sales of passenger vehicles reached an astonishing demand of 65.3 million units, ensuring absolute room for growth and expansion. This level of demand has certainly created a distinctive gap within the market. In 2023, revenues in the passenger vehicles category alone surpassed a category standout US$30.13 billion. Moreover, the market witnessed launch of over 500 new models of passenger vehicles in the same year.

A range of factors such as urban growth, improvements in disposable incomes, and changes in consumer behavior towards self-mobility are affecting the growth of the passenger vehicle segment and, in turn, the engineering services outsourcing in automotive market. Demand for passenger vehicles has remained strong, with urban population exceeding 4 billion. Furthermore, emissions and safety regulations have also increased complexity in the engineering requirements of the vehicles. Today, the average model of the passenger vehicle becomes engineered after 2 million man-hours; a huge leap compared to the previous numbers. Further, the lines of code used in the software content of a passenger vehicle during the year 2023 went beyond 150 million. To highlight, this puts pressure on the engineering side, given the analysis that such content requires a lot of software engineering toward it. The introduction of these extensive engineering requirements further encourages the adoption of ESO services, thereby cementing the position of the passenger vehicle segment in the ESO industry.

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 Regional Analysis 

Over the years, Europe has emerged as a hub for engineering services outsourcing in the automotive market. Currently, the region is holding nearly 38.62% market share as the region commands one of the most comprehensive engineering infrastructures fully capable of delivering innovative solutions. Germany provides the strongest Resorting revenue figures, accounting for most of Europe's ESO in 2023. Investments from leading companies such as BMW and Volkswagen bring the German automotive industry, which stands at 500 billion Euros, to the forefront. The rest of Eastern Europe is also a key player, with the IT outsourcing revenue from Eastern Europe expected to exceed 4.17 billion dollars by 2023. There are more than 400,000 professionals in Poland’s IT market alone. The region's dominance is complemented further by Ukraine's tech talent pool, estimated at about 200,000, and the Baltics booming with over 6,000 startups. Europe spent € 60 billion on automotive research and development in 2023, an economy that has clearly prioritized innovation.

Even though Asia Pacific is the largest automotive market in the world, Europe’s focus on high-quality of engineering, strict compliance of safety and environmental guidelines, as well as solid policy support, have propelled its dominance in the engineering services outsourcing in automotive market. Roughly 13.8 million people work in the European automotive sector, implying a very educated labor force. On top of that, the export economy of EU stands at around 2.1 trillion euros, with the car industry being one of the most significant contributing factors. Europe spends particularly on emerging digital technologies, such as AI and IoT, around €200 billion. Furthermore, the automotive production of the region was over 16 million units in the year 2023, which indicates its strong production capacities. One of the factors leading this trend is the strong demand for more efficient and more tailored software solutions which in turn creates a higher need for advanced engineering solutions in Europe.

Top Players in Engineering Services Outsourcing in Automotive Market

• North America
  • Accenture
  • Altair Engineering Inc.
  • Cognizant Technology Solutions Corporation
  • Frost & Sullivan
  • Genpact
  • International Business Machines Corporation (IBM)
  • TekRevol
  • Other Prominent Players
• Europe
  • Adecco Group AG (Akkodis)
  • ALTEN
  • Applus+ IDIADA
  • ARRK Product Development Group Ltd
  • Arobs
  • ASAP Holding GmbH
  • AVL List GmbH (AVL)
  • Bertrandt AG
  • Capgemini Engineering
  • Concise Software
  • EDAG Group
  • ESI Group
  • Ester Digital
  • HQSoftware
  • IAV GmbH
  • Intersog
  • Kistler Group
  • Lemberg Solutions
  • Magna Steyr GmbH & Co KG
  • Promwad
  • SEGULA Technologies Group
  • TietoEVRY
  • TÜV SÜD
  • Other Prominent Players
• Asia Pacific (India)
  • Cyient
  • HCL Technologies
  • Infosys Limited
  • KPIT Technologies
  • L&T Technology Services (LTTS)
  • Sasken Technologies Limited
  • Tata Technologies Limited
  • Tech Mahindra
  • Wipro Limited
  • Other Prominent Players

Market Segmentation Overview:

By Service Type

• Design and Engineering
  • Concept and detailed design
  • CAD modeling and drafting
  • Design optimization
  • Ergonomics and aesthetics
• Prototyping
  • Rapid prototyping
  • 3D printing
  • Virtual prototyping
  • Functional and aesthetic prototypes
• Manufacturing Engineering
  • Process planning and optimization
  • Tooling and fixture design
  • Assembly line design
  • Quality control and assurance
• Software Development
  • Embedded software development
  • Automotive application development
  • ADAS (Advanced Driver Assistance Systems) software
  • Infotainment system software
• Testing and Validation
  • Component and system testing
  • Durability and reliability testing
  • NVH (Noise, Vibration, and Harshness) testing
  • Crash and safety testing
• System Integration
  • Integration of mechanical, electrical, and software systems
  • Vehicle system architecture design
  • Integration of new technologies (e.g., electric and autonomous vehicles)
• Consulting Services
  • Market analysis and strategy consulting
  • Regulatory compliance consulting
  • Sustainability and environmental impact consulting

By Location

• On-Site
• Onshore
• Offshore

By Pricing Model

• Staff Augmentation (FTE based)
• Time and Materia
• Fixed Price Projects
• Services
• Risk/Rewards

By Application

• Powertrain Components
  • Engines
  • Transmission
  • Exhaust Systems
  • Others
• Chassis and Suspension Systems
  • Suspension Components
  • Steering Systems
  • Brakes
  • Others
• Body and Exterior Components
  • Body Panels
  • Lights
  • Aerodynamics
  • Others
• Electronics and Connectivity
  • Infotainment Systems
  • ADAS Systems
  • Vehicle Connectivity
  • Others
• Other Applications

By Vehicle Type

• Commercial Vehicle
• Off-Highway Vehicle
• Passenger Vehicle

By Propulsion Type

• Internal Combustion Engine
• Electric Engine

By End User

• Original Equipment Manufacturers (OEMs)
• Tier 1 Suppliers
• Aftermarket Service Providers

By Region

• North America
  • The U.S.
  • Canada
  • Mexico
• Europe
  • Western Europe
    • The UK
    • Germany
    • France
    • Italy
    • Spain
    • Rest of Western Europe
  • Eastern Europe
    • Poland
    • Russia
    • Rest of Eastern Europe
• Asia Pacific
  • China
  • India
  • Japan
  • Australia & New Zealand
  • South Korea
  • ASEAN
  • Rest of Asia Pacific
• Middle East & Africa (MEA)
  • UAE
  • Saudi Arabia
  • South Africa
  • Rest of MEA
• South America
  • Argentina
  • Brazil
  • Rest of South America