Over the years, the IT and software industry has become a standard bearer for the Indian brand. The country’s Engineering, Research and Development (ER&D) sector has an opportunity to write a similar story as the automobile becomes increasingly defined by software. In the US$36 billion Indian R&D market, the automotive industry’s share is around 20%. “Automotive share will reach at least 30% in the next five years,” says Siva Polimetla, Director of ER&D, NASSCOM, the industry association for India’s tech sector.
The growth is being led primarily by software engineering and fueled by the global CASE (Connected, Autonomous, Shared Mobility, Electrification) megatrends. According to an industry report, R&D spending in the automotive sector amounts to around USD 150 billion and is expected to reach USD 200 billion by 2025.
With the upward trend of software content in a vehicle, the part of the cost of hardware in a car will go down. “The expectation is that by 2025, around 40% of the cost of the car will be software,” says RV Narasimham, Senior Vice President and Global Head of Integrated Engineering Solutions at Tech Mahindra.
As megatrends redefine the automobile, so too are efforts by OEMs and Tier 1 suppliers to establish technology centers or increase capacity at existing ones in India. Daimler, Renault-Nissan and Stellantis are among the global OEMs that have chosen India to establish technology centers to develop solutions for global applications. Much of the expansion strategy is driven by the growing number of software-driven technologies in a vehicle.
Renault-Nissan Technology and Business Center India (RNTBCI), for example, plans to grow its 8,000-member engineering team soon. RNTBCI managing director Debashis Neogi believes that the industry’s growing adoption or reliance on software is also driven by factors outside the vehicle.
Stellantis, which has three tech hubs in India, plans to earn incremental revenue of around €20 billion from its software-driven vehicles a few years from now. It also targets 34 million monetizable connected cars by 2030. Its Hyderabad tech hub, which works primarily on artificial intelligence and software technologies, will have a key role to play in realizing both plans.
It is estimated that in the next few years up to 30% of an OEM’s revenue could come from services. The trend for OEMs is to gradually add services and monetize them. The Renault-Nissan Alliance is one of them. “Software plays an important role in onboard technologies like CASE, and also in external services. So software is really going to play a big role in product development, but also in car-related services,” says Neogi.
In technologies like CASE, and car-related services, both on-board and off-car, and in product development, software plays an important role. According to industry experts, 30% of a car company’s revenue will come from services.
Engineering and design services provider Tata Technologies is among the companies that are increasing their workforce to also take advantage of the growing opportunities in the automotive space. His team strength crossed the 10,000 mark for the first time a few days ago.
As industry boundaries blur, Sriram Lakshminarayanan, president and chief technology officer of Tata Technologies, expects the same to happen on the technology side. According to him, “The industry is going to look at ER&D skills, digital skills and IT skills. So when you talk about the skills that are needed for the future and the scale of the skillset, I don’t think there is a better country than India that is positioned to do this.”
Along with the technological disruption in the vehicle, there is also a trend to shorten the product life cycle. Gone are the days of the complete development of the vehicle program in 4-5 years. The challenge launched now is to do it in less than 2 years. “Now, for that to happen, the fundamental DNA itself has to change, right where it’s becoming more and more of an ecosystem game,” says Lakhsminarayanan.
Until recently, engineers in India’s tech hubs weren’t involved in such crucial tasks. But now there is a tendency to involve them in large-scale projects. And that is also leading to a talent crunch. Policies and initiatives from both government and industry players are needed to address this challenge.
Putting aside the skills gap challenge, India will also need to grow the talent pool to meet the growing demand. The overall R&D talent pool is approximately 1 million people. This makes India the third largest R&D destination by number of employees. According to NASSCOM, the demand will increase another million in the next five years.
“Today, the offer is around 600,000 and we have to align around another half million talents to the needs of the industry. I think that is what we are working with the companies (to address),” says Polimetla. About 70% of talent demand, she says, is for full-stack embedded technologies and digital integration, including digital engineering.
Another challenge for engineers is improving software productivity, which is known to affect OEMs’ time-to-market plans. “The lines of code in a car have grown from a few thousand to a few million. But the big challenge is that productivity hasn’t increased in line with that,” says Narasimham. According to him, it could help to adopt some of the best practices in applications and push the productivity curve of the software industry.
As technology disruptions occur and the automotive industry becomes increasingly software-defined, standardization of interfaces and collaborative ways of working on new technologies become important. “One of the key elements that we are working on with the government is an innovation supercluster for mobility and a couple of other sectors. This will help industries come together and solve industry-wide challenges.” Polymetla says.
To realize the strong potential of India’s R&D industry, both the central and state governments could help address some of the challenges and needs. Karnataka became the first state to implement an ER&D policy in 2021. Taking a cue from state-level EV policies, there could be a case for more state governments to implement policies that could help India establish itself as a world power. of ER&D.