Global automotive ER&D spending expected to soar, with focus on digital vehicles, sustainability and AI integration: BCG Report, ET Auto

Investment in automotive engineering research and development is expected to grow annually by 8–9% until 2030.Investment in engineering research and development (ER&D) within the automotive sector is set to increase significantly, with an annual growth rate of 8–9% anticipated until 2030. Global ER&D spending in the automotive industry is projected to reach between USD 460 billion and USD 540 billion by the end of the decade, according to a recent analysis by BCG. The growth is driven by a focus on digital engineering, sustainability, and artificial intelligence (AI).

Change driven by connected mobility and digital vehicles
The rise in ER&D spending is largely driven by advancements in connected mobility and digital vehicles. Automakers are increasingly incorporating technologies such as driverless vehicles, advanced driver assistance systems (ADAS), and electrified powertrains. These innovations aim to enhance user experiences and enable seamless real-time data connectivity. The challenge for manufacturers is to balance the high costs of software development while remaining competitive against lower-cost options from regions like Southeast Asia and India.

Automakers are integrating smartphone-like features into vehicles and refining software architecture to support real-time data transfer, making software-defined vehicles (SDVs) a reality. As a result, cars are evolving into platforms that offer personalised, data-driven user experiences rather than merely serving as modes of transportation.

Sustainability: A major priority
Sustainability is another key factor influencing ER&D spending. In response to climate concerns, automakers are focusing on sustainable mobility solutions. Consumer preferences for eco-friendly technology vary; while electric vehicles (EVs) dominate the passenger vehicle market, truck fleet operators often prefer hybrids and fuel-efficient powertrains.

Automobile manufacturers must invest heavily in ER&D to ensure Internal Combustion Engine (ICE) vehicles meet increasingly stringent emission standards. Future vehicle technology will also need to integrate with sustainable infrastructure, such as charging networks and renewable energy grids.

AI: Transforming the auto industry
The use of artificial intelligence (AI) is a significant trend shaping ER&D spending. Automakers and ER&D companies are leveraging AI to accelerate design, development, testing, and vehicle safety. AI is expected to play a crucial role in developing autonomous driving systems, creating personalised experiences, and ensuring seamless integration with other digital platforms.

To maximise AI’s potential in vehicles, collaboration between manufacturers and tech giants like Google and AWS is essential, particularly in areas like AI-based software integration and autonomous safety measures.

Challenges and the way forward
While the automotive sector presents numerous opportunities, it also faces significant challenges. Automakers need to adapt their development processes to address regional variations, rapidly evolving technology, and the shift from product-centric models to service-based solutions. Auto OEMs and ER&D suppliers must implement flexible development strategies and invest in upskilling their workforce to remain competitive.

Looking ahead, automakers are likely to focus on creating an integrated ecosystem that combines AI, sustainable mobility, and smart vehicles. Indian automakers and ER&D service providers stand to benefit greatly from these developments, provided they invest in talent acquisition, research, and partnerships with technology firms.

Technological innovation will be key to navigating the automotive industry’s evolving landscape, and the sector’s ability to thrive in this rapidly changing market will depend on how well it adapts to new trends and challenges.

• Published On Sep 12, 2024 at 07:52 AM IST

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