Mr. Patil, how did business go until 2019?
Kishor Patil: For over 2 decades, KPIT has witnessed significant growth in the space of embedded software. Software within automobiles is a key differentiator for automakers, as it helps them acquire more customers and expand revenues over the lifetime of the vehicle. In 2019, KPIT sharpened its focus in the space of software for the mobility ecosystem.
This is a disruptive time for the automotive industry. While on one side, few automakers are seeing lower vehicle sales, they are also putting in immense resources into technology for upcoming product launches – technologies that will take them towards an electric, autonomous and connected future.
But, two key aspects need to be addressed: Firstly, how quickly and accurately can automakers implement software-led features so that their products reach markets in time while ensuring they don’t lose market share or position? Secondly, how can automakers ensure high quality, first-time-right delivery while keeping costs at check?
It is at this intersection, where KPIT plays an active role, and the reason for our strong partnership with OEMs, Tier-1s and other mobility clients.
Though the Covid-19 pandemic will bring some disruption in the industry for the next couple of quarters; in the medium term, industry and business fundamentals are strong. We will have to be nimble, adapt quickly and innovate to respond to client needs during this time and contribute to their success. Our business fundamentals are very strong, and we continue to deliver consistent results.
What is your turnover in Europe or worldwide?
Kishor Patil: We are a global technology company with competency centers in the USA, Europe, India, China, Japan, Korea and Thailand. Our global delivery model helps us harness expertise from across the world to deliver on our clients‘ programs. We work on programs that are delivered for Europe or any other geographies from all over the world. I would not go into turnover numbers but put this in a slightly different manner: More than 6,000 engineers work at KPIT in the CASE area, i.e. in the topics of connectivity, autonomy, shared mobility and electrification; and CASE accounts for 90% of our business. There are probably very few companies in the world who even come up with such numbers in the CASE area. We are therefore well-positioned in the cutting edge of mobility and we focus exclusively on software.
Which software areas does KPIT cover?
Kishor Patil: We develop software components and software functionalities in the CASE area. Application software, middleware device drivers, basic software platforms and various other aspects of software is what we specialize in. At the same time, we are a software integrator. From prototype, software development to validation and testing – we ensure that software works as conceptualized in production. We understand the challenges in engineering and various nuances that can determine production-ready software.
This is exactly our business: the development of software on one hand and making it ready for production on the other. The automotive industry is in urgent need of deep software competence – both from scale and expertise perspective – which is exactly KPIT’s value proposition. We promise and deliver performance and value. What comes to the fore, is our deep understanding of the automotive industry and a strong understanding of the CASE domain, better than many other software companies.
What facts do you use to justify this statement?
Kishor Patil: Software plays a critical role in a vehicle’s functionality. While in a few cases the role of software could be just performance optimization, but in other cases role of software could be safety-critical. Hence experience of building software that is production-ready for automotive is key.
We have successful partnerships with the top automotive companies for many years. KPIT has written billions of lines of code on 100’s of vehicle programs and delivered software that is already in a large number of vehicle models on road. Having delivered on several complex projects gives us the confidence to take on furthermore challenging engagements. Automotive industry understands that software skills are of critical importance, which is why they are developing core skills inhouse, but they need a partner who can help them reach goals faster, keep up with the standards and ensure software works in production exactly like it did in a prototype.
We are one of the largest “software focused” accelerator and integrator both in terms of size and knowhow of the latest technology areas. We also bring the widest domain expertise in mobility.
On the next page you will be able to read how KPIT is involved in centralized vehicle architectures and you will get to know the significance of Germany and Europe for the company.
How did KPIT acquire the domain know-how?
Kishor Patil: We have acquired our domain know-how through our sharp focus on the automotive industry and very deep relationships with our clients. Our clients are leaders in their space and conceptualize features that end consumers need most. We have delivered software for numerous production programs.
We understand what clients need – not only do we work with the OEMs, but also Tier 1s to help them accelerate programs and deliver at scale. We deliver solutions that are very precisely tailored to individual OEM/ Tier 1 requirements, which is why I mentioned the deep domain know-how.
We are and will be a net talent creator as these skills and domain knowledge is not readily available. We invest significantly in infrastructure, training and competency development.
The future belongs to centralized vehicle architectures. How does KPIT get involved there?
Kishor Patil: OEMs are working to reduce the number of microcontrollers and ECUs. Two aspects are very important here: One is the architecture of the hardware product; the software supplier must understand this to deliver very robust software. Two, a solid understanding in the areas of AUTOSAR, software architecture, integration, etc. is required – and it is precisely this combination KPIT offers.
The centralized architecture creates a new world in which we as an independent software company have many more possibilities. More and more OEMs are ensuring that they have a common architecture across all suppliers and bring in an independent software partner in some areas.
Let‘s take an example of an OEM, who wants to combine three or four ECUs in the area of the electric drivetrain into one unit. Such applications are where we can make a full contribution. This integration into One-Box-Solutions has only just started, but it offers us a lot of possibilities.
How important are Europe and Germany for KPIT?
Kishor Patil: Germany and Europe are of key importance to KPIT. We are represented well with 700 employees in Europe, most of them in Germany. We closely interact with some of the most leading OEMs and their suppliers in cutting edge technologies. I may say it is a truly global competence center with engineers from 25 nationalities. Our competency center in Germany brings expertise in the areas of Autonomous Driving, Powertrain Electrification, AUTOSAR and Diagnostics.
Eight years ago I already interviewed you at your headquarters in Pune, India. What major changes have occurred since then?
Kishor Patil: We have established very significant business relationships with German OEMs and Tier-1s. Seven years ago, Europe contributed less than 10% to our sales, and now it is our largest growth market. Four of our top 10 clients are now from Europe and we have a very deep cooperation; three of them are based in Germany. Seven of our top 10 clients are OEMs, three are tier 1s.
We are very proud that we are intensively involved in the platform and technology development of powertrain electrification, digital cockpit, and automated driving. We are making very important contributions to our client’s software roadmap. Earlier, we probably had less than 20 % revenues from CASE areas, this is now more than 80%.
When we talked eight years ago, we didn‘t have a development center in Germany but worked more on a project basis. We acquired a few niche companies and expanded our presence. The German expertise served as a nucleus and magnet that has attracted experts from everywhere Today, people of 25 different nationalities work for KPIT in Germany. Germany is an important competence center; Additionally, we have competence centers in India, Detroit, Shanghai, Tokyo, and Thailand.
What percentage of KPIT developers are based in India?
Kishor Patil: Our largest workforce is in India. Depending on the engagement needs of clients, we determine how we harness our entire global workforce bringing scale, expertise and more. The employee concentration also varies by technology area. 35% of our workforce currently works outside of India. But in a few cases like electric drivetrain, we have more experts in Germany than other competence centers.
On the next (and last) page you will find more information about the impact of Covid-19 on KPIT and where the company now intends to invest in particular.
Which trends do you see in the automotive industry beyond CASE?
Kishor Patil: I feel the emergence of an independent software Integrator as a partner for OEMs and Tier1s will be more prominent. We believe that is where KPIT has its strength.
Defect-free software will undoubtedly play a much more important role than before. Time-to-market needs to be reduced, at the same time we need to ensure software works in production the same way it did in the prototype stage – the quality of software & software-hardware integration is key. All these inherently require time and experience and hence the need for a software accelerator and integrator will increase.
A vehicle is typically in use for about twelve years, sometimes even longer. As electronics can now enable us, we can also introduce new features via Over the Air updates. This makes it possible to achieve good revenues despite falling cyclical sales of new cars. End consumers need new features, which in practice means „new software“. This may lead to different business models for higher life cycle revenues and monetization of data and services
How does the change from ICE motors to electric drives affect KPIT‘s business?
Kishor Patil: The change from conventional powertrain to electric will vary by country. While countries where crude oil prices are lower, will see a longer cycle of adoption, but, the more environmentally conscious countries will accelerate this change.
Electric vehicles require a lot of software – for battery management, charger, inverter and motor control. There is a big need for virtualization and validation too in software for EVs. We are not a provider of tools, but we use these tools very intensively to implement programs for our clients. For this we also use our specialized algorithms, which we also integrate.
In which areas does KPIT invest particularly?
Kishor Patil: The number one focus for us is the creation of defect-free software as far as possible. The number two focus is on the faster market launch of the solutions – both in terms of features and products. This is exactly where we continue to invest in solid development and appropriate support for our clients.
In practice, this means that we invest particularly in the middleware area, where we can bring most of the components onto the market. We quickly integrate the basic software and middleware and then build relevant features that the OEM does not necessarily have to build themselves. This is in line with our vision of becoming the world‘s number one software accelerator and integrator for the automotive and mobility industry within the next three to five years.
This means we must focus a lot on talent – training and competency building.
That is why we have many partnerships with important universities. We also have an internal engineering academy to teach our employees the relevant skills. The development of our employees is a significant focus for KPIT. I spend nearly 40% of my time on this super-critical aspect of competency development. That‘s a lot for a CEO, but it‘s worth every second because it‘s our future.
What will the Covid 19 pandemic change and what will happen next?
Kishor Patil: We will need to monitor how the Covid-19 pandemic will fully impact the mobility ecosystem.
While on one side, it appears that demand for personal mobility might go up in the short term, shared mobility might be negatively impacted – owing to the nature of pandemic transmission. Revenues of most players in the mobility ecosystem will be disrupted in the short term, but in the medium term we expect things to rebound.
This will also affect specific planned investments – like some vehicle model development getting pushed out. Electrification investments are expected to continue. There will be a realignment and reprioritization of technology spend. I feel digital cockpit Investments will grow significantly. New working practices like – delivery from anywhere in the world – especially for software will become commonplace. This event will lead to a lot of new working practices.
However, we are confident that the nature of software, strong software expertise and the need for an independent software integration partner will not change. We are monitoring these trends as they emerge clearly, and we will be agile to adapt to ensure the success of our clients.
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