Why European and Japanese OEMs Are Losing Ground to China
European automakers need to reduce vehicle costs by 30-40% to remain competitive against Chinese rivals, and software engineering, artificial intelligence and manufacturing improvements will be critical to achieving that, according to senior executives at engineering R&D services company KPIT Technologies.
Several global automakers, particularly in Europe and Japan, are grappling with slowing sales, rising costs and increasing competition from Chinese manufacturers, prompting cost-cutting measures across the industry.
"Earlier, they have been impacted by competition from China, as well as the supply chain issues have added a cost to them. And that has really impacted specifically European players," Kishor Patil, co-founder, CEO and managing director of KPIT Technologies, told reporters on Wednesday.
Patil said many European vehicle manufacturers had announced stricter cost controls, lower vehicle sales volumes, profit warnings, job cuts and write-offs in recent months.
"If you look at last quarter, most of the European players in Germany, France, UK, as well as in Japan have announced stricter cost control and reduced volumes for the car sales…and that has impacted them in multiple ways, like job cuts, profit warnings, pay cuts, and significant write-offs," he said.
According to him, the situation has been worsened by geopolitical disruptions and the US tariffs, which have added further pressure on European manufacturers. "They have taken a beating in China because of the competition from China and their products have become more expensive in US because of the tariffs," Patil said.
"We are also doing costing for them, trying to figure out their cost vis-a-vis the cost of the Chinese vehicles…we can help them reduce the cost of their vehicles, which actually they need to reduce to the tune of 30 to 40% to remain competitive."
Slowdown at European Clients Hits KPIT's Own Numbers
The pressure on global OEMs have also weighed on KPIT, whose business is largely tied to global automotive software engineering and mobility technologies. More than 70% of the company's business comes from passenger vehicle customers, with Europe, the US and Japan among its key markets.
The slowdown among some of its largest European and Japanese customers affected KPIT's own quarterly performance. The company had earlier disclosed that spending cuts by two major clients would weigh on both revenue and profit this financial year. It expects those customers to stabilise in the second half of the year while growth from other customers and business segments offsets the weakness.
KPIT's Fix: AI, Cheaper Software and CareSoft Benchmarking
Patil said KPIT's focus has shifted from being a conventional software supplier to helping automakers lower development and manufacturing costs. "First and foremost, we know them quite well. They trust us," he said.
"I think the shift is, how do we help them reduce the cost of their product? That means doing their software cheaper, better, faster, using AI so that the validation can be done much faster."
The company is also using capabilities gained through its acquisition of engineering benchmarking firm CareSoft to help manufacturers redesign vehicles and manufacturing processes.
"With the acquisition of CareSoft, we are helping them to do benchmarking and reduce the cost of their vehicles from the vehicle engineering perspective, whether it's cost of the individual components, individual parts or components," Patil added.