The auto engineering business from leading software service providers are suffering a drawback in the first half of FY25 caused by the impact of the slowdown in the European automotive industry.

The automotive industry, particularly in Europe, was slow in Q2, according to top IT majors Tata Consultancy Services (TCS), Infosys, and HCLTech. Regulatory changes and the series of declining supply chain incidents were held to account for this.

Higher technological investments were made due to the European legislative push toward electric vehicles (EVs), with lower margins, and fierce price competition from China, have reduced demand for new cars. Major automakers like Mercedes-Benz, Porsche, Stellantis, and Volkswagen all announced lower-than-expected profits, demonstrating the impact.

IT executives are nevertheless hopeful about manufacturing expansion outside of the automotive sector, even in the face of the industry's recession. Srinivas Pallia, the CEO and MD of Wipro, emphasized the technical prospects in cloud-based automobile solutions and software-defined vehicles (SDVs).

About 50–60 percent of manufacturing sales for Indian IT services firms come from the automotive tech sector, which is a big vertical that accounts for 15 percent of India's $250 billion outsourcing market, according to Pareekh Jain, founder and CEO of IT research firm EIIR Trend. This puts the value of India's automotive engineering and technology sector at about $20 billion.

About $13 billion of the $97 billion in FY24 revenues of the top six Indian companies—TCS, Cognizant, Infosys, HCLTech, Wipro, and Tech Mahindra—came from manufacturing.

The impact on KPIT Technologies, a mid-sized engineering firm with an automotive concentration, was more noticeable, and pressures are predicted to continue over the following two quarters. For the first time since the pandemic, Europe and the UK, which account for more than 40 percent of KPIT's revenues, saw a fall.

As auto manufacturing growth slowed, the lag impact became apparent in the July-September quarter results of technology service companies. It is projected that this overhang will continue throughout the third quarter, which concludes in December. The top three companies' manufacturing segments stayed steady, but Tech Mahindra, the fifth-largest, reported a four percent drop in its manufacturing vertical as a result of the downturn of the automotive sector. Analysts note that beginning with the June quarter, headwinds caused auto engineering revenues to drop by 0.3 percent on a quarter-over-quarter (QoQ) basis, the first dip in three years.