KPIT Technologies Ltd.'s Joint Managing Director and co-founder, Sachin Tikekar, along with CFO Priya Hardikar, recently told Business Today TV that the difficulties confronting their major automotive clients are fundamental and long-lasting, not merely temporary market fluctuations.
According to Tikekar and Hardikar, the global automotive sector is grappling with significant challenges, including intense competition from Chinese manufacturers, geopolitical uncertainties, and tariffs. These factors have resulted in supply chain disruptions, increased operational costs, and elevated input prices for KPIT's clients, subsequently impacting KPIT's own business performance.
Top Clients Trim Budgets, Impacting KPIT's Revenue
Hardikar confirmed that several KPIT clients have implemented drastic measures, such as job cuts and substantial write-offs, as part of restructuring efforts. She noted that two of KPIT's top clients specifically reduced their budgets. This contributed to a one percent year-on-year decline in KPIT's reported dollar revenue for Q1, alongside a 3.6 percent sequential decrease on a constant currency basis, leading to reduced profits.
Tikekar elaborated on the client issues, citing a major Japanese car manufacturer, KPIT's top client, which scaled back its electric vehicle programs around the March quarter. This had a significant impact on KPIT Tech. Subsequently, KPIT's second-largest client issued a profit warning towards the end of the June quarter, further affecting revenue and disproportionately hitting the company's bottom line due to insufficient time to adjust costs.
Chinese Competition and Tariffs Drive Structural Change
The executives highlighted severe challenges for European and some Japanese Original Equipment Manufacturers (OEMs). Their primary markets, China and the US, are proving difficult. In China, these OEMs have consistently lost market share over the last three years, with the market itself dropping by 20-25 percent year-on-year in the first half of the current year. Compounding this, clients face tariffs in the US, their second-largest market.
"This is a structural change. This is not a cyclical change. Because of the competitive landscape that has been disrupted by the Chinese car players," Tikekar stated, emphasizing the enduring nature of these shifts.
Tikekar pointed out that Chinese competitors boast a 30-40 percent, and sometimes even 50 percent, cost advantage. Furthermore, Chinese manufacturers can deliver new features and products much faster than their European and Japanese counterparts, leaving established players with considerable ground to cover.
KPIT's Role in Client Transformation
As a key partner, KPIT Technologies is committed to assisting its European and Japanese clients in this challenging environment. The company aims to help them not only reduce the cost of their products by 30-40 percent but also achieve similar reductions in production costs, thereby supporting their efforts to increase time to market and reduce overall expenses.