Auto companies go heavy on tech investments even as they work overtime to cut costs

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Automakers are stepping up investments in technology and future projects, even as they cut costs to weather the Covid-19 pandemic. Tata Technologies, KPIT, Capgemini and have been bagging new projects even amid the virus outbreak, as automakers take a long-term view in a competitive environment.

Research and development (R&D) spending by automotive companies is expected to increase by 6.5% on average this year, with a focus on software and electric vehicles (EVs), business intelligence firm IHS Markit said in a report recently. A tenth of the respondents in its survey was from India. “As we have addressed during our quarterly results, technology spending is positive,” KPIT said in an email to ET.

KPIT, Capgemini and Tata Technologies said the bulk of future investments in R&D globally will be related to EVs, autonomous vehicles and connected car technologies. In India, however, EVs attract the bulk of the investments, which have been growing despite cost cuts by automakers in other business areas.

Mahindra and Mahindra (M&M) has outlined capital expenditure of Rs 3,000 crore for EVs in the next three years, while ’ overall investment for this year will be Rs 3,000 crore, again focused on EVs. The investments are on track despite both companies delivering significant cost savings in FY21, with similar plans for the ongoing fiscal year.

EV projects involve investment around battery technology and management systems, motors, thermal management systems, and power electronics. “I can’t think of projects which don’t have some form of electrification,” Warren Harris, the chief executive of Tata Technologies, told ET. Citing the example of a leading Indian automaker, Harris said the cost savings came in the form of reduced production costs, streamlined raw materials and headcount.

In the long term, cost reductions are being achieved by shedding legacy IT infrastructure in favour of Cloud and digital systems. “A lot of the savings has been driven to invest in digital and we have been a beneficiary there,” Harris said. Investment in connected vehicles is also slowly taking off in India but spending on autonomous technology remains negligible except for some pilot projects, said Shamik Mishra, vice president, Capgemini Engineering – India.

Tata Elxsi said in its annual report that automakers and component manufacturers were also growing their R&D expenditures on initiatives to develop driver assistance and industry 4.0 capabilities.

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