|Image Source: AI Imagine
A crippling United Auto Workers (UAW) strike comes at a pivotal moment, just as Detroit’s automakers gear up to challenge Tesla’s dominance in the fast-growing electric vehicle space. Experts warn the strike could deal a major blow to President Biden’s vision of unionizing the next generation of American EVs.
On September 15th, over 48,000 UAW workers walked off the job at three General Motors, Ford and Stellantis plants, bringing factories to a standstill. The union is demanding higher wages, expanded benefits, job security assurances and a path to permanent seniority for temporary workers. However, negotiations hit an impasse after the automakers balked at the alleged multi-billion dollar cost of UAW proposals.
As the strike entered its fourth day, the White House urged both sides to reach an agreement quickly. But a protracted dispute could significantly hamper Detroit automakers’ EV rollout plans for the next few years. This would hand their arch-nemesis Tesla yet another competitive advantage, cementing its position as the dominant U.S. electric vehicle manufacturer.
“Tesla’s cost advantage over the Detroit automakers is going to substantially widen as a result of this strike,” warned Garrett Nelson, Vice President of Equity Research at CFRA, an investment advisory firm. He notes that even before the strike, hourly labor costs were significantly higher at Ford, GM and Stellantis plants, compared to Tesla’s non-union factories.
Legacy Auto Struggles With Costs, Complexity of EV Transition
Tesla currently sells around 60% of all electric vehicles in the United States, according to industry tracker Cox Automotive. The company aims to press this advantage by aggressively cutting prices, expanding production capacity and rolling out new models like the hotly anticipated Cybertruck.
At the same time, legacy automakers remain in the throes of a complex, expensive transition from internal combustion engine vehicles to electric ones. Ford, GM and Stellantis must optimize huge global supply chains, retool massive factories and retrain hundreds of thousands of employees in order to switch to EV manufacturing.
A prolonged UAW strike impedes their ability to execute ambitious plans for launching and pricing new battery electric models to compete with Tesla over the next 3–5 years. Internally, Ford estimates the union’s current package would swell its EV labor costs 67% above Tesla’s, per sources granted anonymity to discuss internal projections.
“That cost differential is leading to very significant market share gains for Tesla, with or without the strike,” noted Tyson Jominy, Vice President of Data and Analytics at J.D. Power. He predicts even a six-week strike would rob the Detroit Three of 200,000 unit sales from production losses, forcing near-term vehicle price increases of 2–5%.
Other experts warn the expensive new UAW contract terms risk locking in permanently higher costs compared to newer rivals without legacy baggage. This would fundamentally jeopardize the long-term competitiveness of legacy automakers in the EV space, said Asutosh Padhi, McKinsey & Company’s Head of the Americas automotive practice.
Tesla Leverages Its Charging Lead to Frustrate Biden’s Pro-Labor Push
Tesla’s technology leadership also threatens to upend the Biden administration’s vision of unionized American auto workers powering a green vehicle future. In January, Ford and GM agreed to adopt Tesla’s proprietary North American charging standard for their upcoming EVs, abandoning the alternative CCS standard favored by the White House.
“It’s a big win for Tesla,” explained Sam Abuelsamid, principal analyst for Guidehouse Insights. The move was a stunning reversal after Biden’s infrastructure bill mandated the CCS standard for federally-funded EV chargers just months prior.
It marked the latest in a series of conciliatory moves toward Tesla by the administration after initial high-profile snubs. In August 2021, GM, Ford and Stellantis executives were invited to the White House lawn for a major EV policy summit. Tesla, with its vocal anti-union stance, was pointedly excluded from the event.
When questioned at the time if Tesla’s non-union status explained its snubbing, then White House Press Secretary Jen Psaki responded, “These are the three largest employers of the United Auto Workers, so I’ll let you draw your own conclusions.”
Relations between the Biden Administration and Tesla have gradually warmed over the past year, however, as the urgency of Biden’s EV adoption targets made clear that engaging with Tesla was necessary. In January 2023, two of Biden’s top advisors hosted Elon Musk for a meeting at the White House to discuss EV policy and incentives. Weeks later, the administration announced a deal for Tesla to open part of its proprietary charging network to non-Tesla vehicles in exchange for access to federal charger funding.
However, Musk continues to regularly criticize and mock Biden over his pro-union positioning. On the X social media platform, Musk recently dismissed Biden as “a damp [sock] puppet in human form” while alleging he had “pointedly ignored Tesla at every turn.”
UAW Focused on Worker ‘Economic Justice’ But Risks Competitive Imbalance
UAW President Ray Curry asserted this week that the strike was fundamentally about “economic justice” for autoworkers and dismissed concerns about Tesla’s widening competitive advantage. However, industry experts counter that a balanced compromise is essential for the long-term health of Detroit automakers as competition rises.
“The auto industry is extremely capital intensive with slim profit margins,” explained Kristin Dziczek, Senior Vice President of the Center for Automotive Research. “Labor costs can’t be allowed to structurally drift too far from those of the transplant automakers and Tesla for these companies to remain viable.”
Union negotiators point out autoworkers deserve higher wages after weathering the pandemic, as automakers book healthy profits and Tesla/EV demand remains strong. However, experts say pricing advantages, technology innovation and manufacturing agility now matter more than ever before in the 21st century auto industry.
“The UAW needs to modernize its bargaining approach while respecting its workers’ legacy,” noted Michelle Krebs, Executive Analyst at Cox Automotive. “Similarly, the automakers need to fairly share financial successes with their employees. This is not an either-or situation.”
Tesla’s Ascent Relies On Execution, Not UAW Labor Dispute Outcome
Ultimately, Tesla’s market trajectory depends far more on flawless execution of its ambitious growth plans than any potential strike outcome. The automaker aims to be selling 20 million electric vehicles per year by 2030, a massive increase from under 1.5 million in 2022.
“Elon Musk strongly believes his workers are already very well rewarded through stock options, without the need for a union,” explained Tesla policy lobbyist Mona Dajani. However, Tesla also faces its own fierce headwinds, including high turnover rates, controversies around its workplace culture and doubts its manufacturing can scale efficiently.
For President Biden, hopes for a robust American electric vehicle industry with well-paid unionized factory jobs already appear somewhat illusory. Tesla and new EV startups are adding jobs at non-union plants nationwide, while Detroit stalwarts close outdated factories or retool for electrification with more automation.
There are no straightforward solutions in an increasingly complex, unstable auto industry. However, the acute pressures of the UAW strike have intensified the need for pragmatic problem-solving on all sides. How the dispute gets resolved in coming weeks will profoundly shape the American electric vehicle landscape Biden oversees moving forward.
“Focusing on shared priorities like quality manufacturing jobs, instead of just playing to their respective constituencies, offers the best path forward for both workers and domestic automakers,” said Jeffrey Sonnenfeld, professor at the Yale School of Management. “American innovation and workers’ rights shouldn’t be seen as competing goals.”