In Brief:

• Europe’s auto industry faces a €440 billion risk as it races toward the software-defined-vehicle era.
• India’s rising engineering hubs – such as Thiruvananthapuram – show how that future can be built faster, smarter and in partnership with Europe’s Tier-2 software firms.

From the windows of Acsia’s Global HQ and R&D Centre in Technopark, Thiruvananthapuram, the Arabian Sea stretches to the horizon in a sweep of blue. It was my first visit to this southern Indian city, and the view – and what lay behind it – took me by surprise. Inside, teams of young engineers were shaping the software that will define tomorrow’s cars. Having spent over three decades in Europe’s automotive industry, I did not expect to find a hub of software-defined-vehicle (SDV) innovation here, thousands of miles from Munich and Stuttgart.

Back here in Germany’s automotive heartlands, the conversations are urgent. A recent McKinsey report warns that Europe’s auto industry – roughly 7 percent of EU GDP and nearly 14 million jobs – could see as much as €440 billion of value at risk by 2035 if it cannot master the electric and software revolutions. McKinsey calls for an “ERA” action plan: sharpen Economics, reinforce Resilience, and accelerate decArbonization, with digitalisation and AI as the glue.

The European Challenge

The report lays out three fronts where Europe must move fast:

• Economics. OEMs must cut costs by 20–50 percent and halve time-to-market, even while investing about €150 billion every year in next-generation products. Software talent is scarce and energy costs remain higher than in the U.S. or China.
• Resilience. As the industry pivots from internal-combustion engines to battery-electric vehicles, Europe’s local value capture drops from about 85–90 percent to roughly 75 percent, and to only 15–20 percent when BEVs are imported. Less than 10 percent of global battery cell capacity sits in Europe today, and more than 95 percent of the EU’s rare-earth imports come from China – a supply-chain vulnerability that can no longer be ignored.
• decArbonization. Achieving net-zero transport means expanding the DC charging network nearly six-fold and investing some €350 billion in grid and renewable upgrades by 2035, while also developing hydrogen and sustainable fuels for sectors where full electrification will be slow.

The Paradox of Opportunity

Here is the paradox: the very pressures that keep executives in Munich and Stuttgart awake at night – shrinking combustion profits, the scramble for SDV platforms, fragile supply chains – are creating daylight for India’s engineering hubs.

In Thiruvananthapuram I saw it first-hand. India’s advantage is no longer about low cost alone. It lies in scale, specialised skills and a maturing innovation culture. Teams here have moved beyond executing specifications to co-designing entire platforms: AUTOSAR and Android Automotive stacks, advanced HMI, functional-safety engineering and AI-driven verification and validation. They are already experimenting with battery-management software, predictive maintenance and AI/ML for autonomous-driving functions – the very “critical future technologies” McKinsey flags as essential for Europe’s survival.

A Direct Message to Europe’s Tier-2 Software Firms

For Tier-2 automotive software companies in Europe, this is not just an interesting case study; it is a strategic opening. You may not have the deep pockets of the global OEMs or the tech giants, but you have agility. Partnering with Indian engineering houses offers:

• Economic leverage – scalable teams and AI-enabled engineering capacity that help European OEMs meet aggressive cost and time-to-market targets.
• Resilient supply-chain options – a “China + 1” design and development partner in a country whose electronics manufacturing base is expanding under Make-in-India incentives.
• Decarbonization expertise – software and control systems for EVs, hydrogen fuel cells and hybrid powertrains that complement Europe’s own green ambitions.

This is not the old model of outsourcing. It is joint IP, shared R&D and cross-border innovation labs: a Franco-Italian specialist co-developing ADAS testing with a Kerala engineering group; a German mid-tier firm partnering on reusable SDV middleware that halves verification cycles.

Looking South to Move Forward

Europe’s path to a software-defined, net-zero automotive future will be written in code – and code knows no borders. Tier-2 software players who move early to build partnerships in India can turn McKinsey’s warning into their competitive advantage.

In Munich and Stuttgart, they call it Transformation.
In Thiruvananthapuram, it’s simply another Tuesday.

Based on insights from McKinsey’s report “A new ‘ERA’: An action plan for the European automotive industry,” September 2025.

Lutz Nettig is Head of Sales and Business Development – Europe, Acsia Technologies.