Covid-19: Slowdown in ER&D Spending Now Likely

/ February 29, 2020/ Aerospace, Automotive, China, News, Technology

Early Signs of Covid-19 Impacting ER&D Spending

Currently, Covid-19 has only affected China significantly, although having spread in South Korea, Japan, and Northern Italy.
Several ER&D vendors have been impacted so far: Ricardo has warned that the situation in the Chinese automotive market would have a “material” effect on its profit.
Alten reported a similar among its 800 engineers in China. However, given the scale of the firm, the Chinese situation will only have a limited impact on its financials.
We expect AFRY and Akka, which provide export automotive engineering services from respectively Sweden and Germany to China, to be affected, although in a limited manner.

The ER&D Market Had Slowed Down

There are two scenarios to envision: a SARS-like scenario with a light impact on ER&D spending and a pandemic case that impacts global expenditures.
We can’t, of course, predict how the pandemic will develop.
However, Covid-19 comes at a time when ER&D spending has slowed down in two of the three-largest vertical market, i.e., automotive and aerospace (with Boeing’s woes indirectly impacting ER&D vendors in Germany and France).
High-tech, the largest ER&D market, mostly in the US, remains, however, solid despite the slowdown in the semiconductor industry. With automotive and aerospace slowing down, the fate of the ER&D industry is dependent on California-headquartered firms working mostly with Indian and Central European suppliers.
Here is the bad news: California is the state where coronavirus is spreading the fastest, in the US.

We are revising our ER&D spending growth to a maximum of 5% in H1 2020.

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