The downturn in the European automotive sector has cast a shadow over the auto engineering business for leading Indian software service providers and engineering, research and development (ER&D) firms in the first half of FY25.
Key IT services players like Tata Consultancy Services (TCS), Infosys and HCLTech posted weaker demand from their automotive clients, driven largely by the European market’s challenges with supply chains, shifts in regulatory needs, poor macroeconomic conditions and rising cost pressures weighing heavily on the sector.
The revenue growth of ER&D-focused firms, who previously outperformed traditional IT services companies, has also been hit with many companies reporting a negative sequential growth in the June quarter after nearly two years.
Prominent ER&D services companies focused on automotive clients such as L&T Technology Services, Tata Technologies and CyientDET also reported revenue declines in the first quarter of FY25. LTTS saw a 3.3% q-o-q decline in its topline, while Tata Tech posted a 2.9% fall and CyientDET logged a 5.4% plunge. HCLTech’s ER&D segment also saw a 3.7% drop in its dollar revenue. However, in the September quarter, most of them reported a sequential growth.
Meanwhile, the mid-sized, automotive-focused engineering firms like KPIT Technologies have seen an even sharper impact as the company derives over 40% of its revenues from Europe. “There are headwinds for the mobility which I’m sure you are seeing in the news, but it is different headwinds for different people,” said Kishor Patil, co-founder, CEO and MD of KPIT, during an analyst call after Q1 results. “For overall automotive, especially passenger cars, the overall sales of vehicles are going to be flattish or go down a bit,” he added.
During the September quarter earnings, Infosys CEO Salil Parekh, too, said, “We have seen slowdown in the automotive sector in Europe.” Even HCLTech CEO C Vijayakumar said, “There is pressure in automotive, especially in Europe, reflected in our numbers this quarter and likely in the next as well.” He added that some major clients in Europe have implemented cost-cutting measures, leading to project cancellations.
The EU’s regulatory push toward EVs has led automakers to contend with slim margins in EV production, as well as intense price competition from Chinese manufacturers. As a result, new car demand has slowed. Large European automakers such as Volkswagen,
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