Top IT giants Tata Consultancy Services (TCS), Infosys, and HCLTech reported softness in the automotive sector, particularly in Europe, during Q2. This was attributed to ongoing supply chain challenges and regulatory shifts.

The European regulatory push toward electric vehicles (EVs), which have lower margins, coupled with intense price competition from China, has dampened new car demand, prompting higher technology investments. The impact is visible in the financial results of major automakers like Volkswagen, Stellantis, Mercedes-Benz, and Porsche, which reported lower-than-expected profits.

TCS and Infosys CEOs echoed these concerns.

ETtech

Salil Parekh, CEO and MD of Infosys, noted a slowdown in Europe’s automotive sector, stating, “We have seen slowness in the automotive sector in Europe…The European automotive sector faces recent challenges, while discretionary spending remains under pressure. We see opportunities in supply chain optimization, cloud ERP, smart factories, and connected devices across various sub-verticals.”

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Similarly, HCLTech CEO C Vijayakumar remarked, “There is pressure in automotive, especially in Europe, reflected in our numbers this quarter and likely in the next as well.” Vijayakumar added that cost-cutting measures among some major clients have led to project cancellations.

Despite the automotive slowdown, IT leaders remain optimistic about manufacturing growth outside the automotive space. Wipro CEO and MD Srinivas Pallia highlighted opportunities in software-defined vehicles (SDVs) and cloud-based car solutions on the engineering front.

According to Pareekh Jain, founder and CEO of IT research firm EIIR Trend, the automotive tech business for Indian IT services firms comprises roughly 50-60% of manufacturing revenues—a significant vertical, contributing about 15% to India’s $250 billion outsourcing industry. This places India’s automotive tech and engineering sector at approximately $20 billion. “The automobile industry has seen tailwinds over the past three years, but the momentum is shifting. Incumbent OEMs are facing challenges in EVs, with new models underperforming against Chinese competitors. Partnerships to reduce R&D costs are on the rise, and this pressure is permeating the entire auto value chain, including tier-1 suppliers,” said Jain.

For the top six India-based companies—TCS, Cognizant, Infosys, HCLTech, Wipro, and Tech Mahindra—FY24 revenues totaled around $97 billion, with manufacturing revenue comprising approximately $13 billion.

Mid-sized, automotive-focused engineering firm KPIT Technologies experienced a more pronounced impact, with pressures expected to persist over the next two quarters. Europe and the UK, which represent over 40% of KPIT’s revenues, showed a decline for the first time since the pandemic.

KPIT CFO Priyamvada Hardikar noted the challenges facing the mobility industry, particularly in the automotive sub-vertical, as it contends with regulatory changes, rising vehicle costs, and shifting consumer preferences. “In Europe, OEMs are facing financial turbulence…The financial situation of some U.S. clients also adds to this uncertainty,” Hardikar commented, adding that the company is working closely with clients to prioritize and adjust delivery strategies, which may lead to delayed growth.

The lag effect became evident in technology service companies’ July-September quarter results, as auto manufacturing growth declined. This overhang is anticipated to persist into the third quarter ending December. While the manufacturing segment remained stable for the top three players, Tech Mahindra, the fifth-largest, reported a 4% decline in its manufacturing vertical due to automotive sector softness. Analysts observe that headwinds led to a 0.3% quarter-on-quarter (QoQ) decline in auto engineering revenues starting from the June quarter—the first such decline in three years.

Top IT giants Tata Consultancy Services (TCS), Infosys, and HCLTech reported softness in the automotive sector, particularly in Europe, during Q2. This was attributed to ongoing supply chain challenges and regulatory shifts.

The European regulatory push toward electric vehicles (EVs), which have lower margins, coupled with intense price competition from China, has dampened new car demand, prompting higher technology investments. The impact is visible in the financial results of major automakers like Volkswagen, Stellantis, Mercedes-Benz, and Porsche, which reported lower-than-expected profits.

TCS and Infosys CEOs echoed these concerns.

ETtech

Salil Parekh, CEO and MD of Infosys, noted a slowdown in Europe’s automotive sector, stating, “We have seen slowness in the automotive sector in Europe…The European automotive sector faces recent challenges, while discretionary spending remains under pressure. We see opportunities in supply chain optimization, cloud ERP, smart factories, and connected devices across various sub-verticals.”

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Similarly, HCLTech CEO C Vijayakumar remarked, “There is pressure in automotive, especially in Europe, reflected in our numbers this quarter and likely in the next as well.” Vijayakumar added that cost-cutting measures among some major clients have led to project cancellations.

Despite the automotive slowdown, IT leaders remain optimistic about manufacturing growth outside the automotive space. Wipro CEO and MD Srinivas Pallia highlighted opportunities in software-defined vehicles (SDVs) and cloud-based car solutions on the engineering front.

According to Pareekh Jain, founder and CEO of IT research firm EIIR Trend, the automotive tech business for Indian IT services firms comprises roughly 50-60% of manufacturing revenues—a significant vertical, contributing about 15% to India’s $250 billion outsourcing industry. This places India’s automotive tech and engineering sector at approximately $20 billion. “The automobile industry has seen tailwinds over the past three years, but the momentum is shifting. Incumbent OEMs are facing challenges in EVs, with new models underperforming against Chinese competitors. Partnerships to reduce R&D costs are on the rise, and this pressure is permeating the entire auto value chain, including tier-1 suppliers,” said Jain.

For the top six India-based companies—TCS, Cognizant, Infosys, HCLTech, Wipro, and Tech Mahindra—FY24 revenues totaled around $97 billion, with manufacturing revenue comprising approximately $13 billion.

Mid-sized, automotive-focused engineering firm KPIT Technologies experienced a more pronounced impact, with pressures expected to persist over the next two quarters. Europe and the UK, which represent over 40% of KPIT’s revenues, showed a decline for the first time since the pandemic.

KPIT CFO Priyamvada Hardikar noted the challenges facing the mobility industry, particularly in the automotive sub-vertical, as it contends with regulatory changes, rising vehicle costs, and shifting consumer preferences. “In Europe, OEMs are facing financial turbulence…The financial situation of some U.S. clients also adds to this uncertainty,” Hardikar commented, adding that the company is working closely with clients to prioritize and adjust delivery strategies, which may lead to delayed growth.

The lag effect became evident in technology service companies’ July-September quarter results, as auto manufacturing growth declined. This overhang is anticipated to persist into the third quarter ending December. While the manufacturing segment remained stable for the top three players, Tech Mahindra, the fifth-largest, reported a 4% decline in its manufacturing vertical due to automotive sector softness. Analysts observe that headwinds led to a 0.3% quarter-on-quarter (QoQ) decline in auto engineering revenues starting from the June quarter—the first such decline in three years.