Tesla benefits as US auto workers strike

If US automakers have to raise wages at union demands, Tesla will have an even greater price advantage because it is outside this "wave".

On September 15, members of the United Auto Workers (UAW) union began a strike at factories of three automakers: General Motors, Ford Motor, and Stellantis.

Under pressure from unions, the three companies are expected to raise wages for workers. The question now is how big the increase will be. So far, their proposals have not satisfied the unions.

The wage increases at these companies will give Tesla an even greater price advantage because they are outside this "wave" of wage increases.

Labor costs (including wages and benefits) for companies in Detroit (the center of US auto manufacturing) are estimated to average $66 an hour. Tesla's is $45. Wells Fargo estimates that if all of Fain's conditions are met, US automakers would have to raise labor costs to $136 an hour.

Workers outside a Ford factory in Detroit (Michigan, USA). Photo: WSJ — Workers outside a Ford factory in Detroit (Michigan, USA). Photo: *WSJ*

There are fundamental differences between Tesla workers and UAW workers. UAW members receive bonuses based on company profits. Tesla workers get stock options. Tesla’s stock has soared over the past few years, though it has also been volatile. This year, it has more than doubled.

Fain argued that the old labor contracts had not kept up with inflation, leaving their members worse off. Their sacrifices have helped automakers profit in recent years. Ford later responded that the UAW’s demands were “more than double” its current labor costs. Its labor costs are also now higher than Tesla, Toyota, and many other foreign automakers in the United States.

Many analysts now believe that American automakers will have to accept higher costs. “The bigger issue is that it will add pressure to the already difficult transition to electric vehicles,” Dan Levy, an analyst at Barclays, warned investors.

Last week, Fain was similarly angry when asked about Tesla’s cost advantage. “I don’t care how many spaceships Elon Musk builds to go into space or anything like that. I care that the working class needs to have a fairer slice of the economic pie,” he said.

For years, American automakers have complained that their Asian rivals, free from the UAW, benefit from cheap labor, which they say allows them to lower prices and attract buyers.

The UAW also tried to unionize Tesla when workers went on strike in 2017 and 2018, when the company had just one factory in San Francisco and struggled to produce the Model 3. Those efforts were unsuccessful, however.

Musk also claimed that Tesla's stock options policy gives its workers the highest compensation in the industry, saying that many workers "become millionaires because of the stock awards."

At Tesla, the average hourly wage for a factory technician is $23 to $32, according to the job-advice website Glassdoor. Tesla advertises jobs at its California factory that pay $24 to $67 an hour, plus bonuses, stock options and other benefits.

“We encourage listening to music and doing something fun. It’s important to make people want to come to work. We pay better than the UAW, and we’re more productive,” Musk said in a recent post on X.

Long-standing automakers in the US are also having to both find ways to restructure costs and participate in the expensive transition from gasoline to electric vehicles.

In March, Musk announced plans to gain an advantage by cutting the cost of future models by 50 percent, an ambitious goal that will require advanced technology and other changes.

Tesla’s CEO’s moves this year also show how the company can use its cost advantage to engage in a global price war. In July, Tesla announced a 20% increase in second-quarter profits, despite cutting prices since the beginning of the year. Meanwhile, Ford, which has been losing money on electric vehicles, announced it would slow growth in the segment.

Over the past four years, UAW has increased wages by as much as 20%. However, UAW President Shawn Fain wants to increase wages by more than 30%, down from his initial demand of at least 40%. The union represents 146,000 auto workers in the United States.

Ha Thu (according to WSJ)

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