Denied the dubious spectacle of a cage match between Elon Musk and Mark Zuckerberg, the world may yet be treated to a contest pitting the Tesla chief executive against an underdog from Indiana. Shawn Fain, leader of the United Auto Workers, shares Musk’s taste for hyperbole and confrontation. More importantly, he feels not just the crowd supporting him but also, as it were, the steel of the cage at his back.
The UAW’s strike is a money-loser for the Big Three Detroit automakers, both in terms of lost production while it goes on and the likely higher labor costs that will result. On that view, it can only be a plus for Tesla Inc., whose US plants aren’t unionized and pay workers lower wages.
But it also would widen the gap between those unionized and non-unionized wages. Including benefits and other incentives, the all-in cost of Detroit’s full-time employees is estimated to be around $65-$70 per hour, compared with about $45 at Tesla. That implies a labor cost advantage in the US of about $1.4 billion to $1.75 billion, or up to $2,700 per vehicle. Raise base wages for UAW employees by 30% — which seems to be where negotiations are coalescing — and at the top end that gap would rise above $2 billion,1 a target that would get any union’s attention.
For Fain, who frames his fight as part of a larger struggle against “the billionaire class,” Musk is virtually a caricature, if not a gift: The richest man in the world with a space-travel sideline, an expensive social media fetish and an animosity to unions expressed in both word and, according to rebukes from the National Labor Relations Board, deed. Fun as it might be jabbing at Mary Barra and Jim Farley — who lead General Motors Co. and Ford Motors Co., respectively — Musk would surely make for a more engaging sparring partner.
More importantly, Tesla offers a potential way out of the UAW’s biggest dilemma — albeit a way out that is strewn with obstacles.
Besides the union’s immediate concerns over pay and benefits, its existential challenge concerns electric vehicles. More digital than mechanical, the EV’s rise portends layoffs as some legacy factories close, even assuming new ones for batteries (many of them in union-unfriendly states). The importance of this shift for the union is underscored by its decision Friday to hold off expanding strikes after GM caved on the issue of putting employees manufacturing batteries under the UAW’s master contract. Meanwhile, the UAW’s aging demographics also point to a further thinning of the ranks.
The long-running decline in union membership mirrors the decline in Detroit’s share of the US vehicle market. That was 90% during the industry’s, and organized labor’s, 1960s heyday. By the time of the debacle of 2009, it had fallen to about 50%. Now it’s closer to 40%. As Kevin Tynan, automotive analyst at Bloomberg Intelligence, points out, the Big Three have effectively downsized by ditching cheaper models and focusing on higher-priced trucks and SUVs to chase profits. As they attempt to open up a new avenue of growth, EVs, they are confronted with big near-term costs that higher pay settlements will exacerbate. “The UAW must broaden its view if it is going to increase its membership,” says Tynan, adding “they have to stop only going back to GM, Ford and Stellantis. There is no more blood in those stones.”
The UAW has been aware of this for some time, which is why it targeted foreign automakers’ factories — so called “transplants” — and Tesla itself at various points over the past decade. Such effort has been largely in vain.
Tesla, meanwhile, has become profitable at scale only recently. The company’s identity as a disruptive newcomer, with plants far from the UAW’s heartland around the Great Lakes, is another barrier. It is harder to entice workers into a union when their employer is hiring at breakneck speed rather than shedding thousands of jobs. Tesla has also pushed back aggressively against unionization, as those NLRB rulings attest (Tesla is appealing several of these).
Then there’s that defining feature of Tesla: Its runaway stock price. In a 2018 tweet that the NLRB ruled illegally threatened workers, Musk questioned why his staff would choose to unionize and “give up stock options.” (Tesla’s appealing that one). Musk has claimed such options have made some line workers millionaires and he is probably right about that, given the roughly 1,100% increase in the stock price since the end of 2018.
Then again, most of that surge happened in 2020. While Tesla’s stock peaked in late 2021, today it is roughly where it was at the start of that year. So while more recent hires who also happen to be deft traders might reap huge gains from their grants, they must surely wonder if there’s really another 10-bagger lurking in a company already valued north of $800 billion. As it stands, Tesla’s manufacturing-related stock based compensation in 2022 of $594 million implies a benefit of around $9,300 per employee or $4.65 per hour.2
That is roughly the same as the $4.44 per hour, assuming 2,000 hours worked per year, that Ford paid in profit sharing and bonuses to US employees last year. If Fain wanted to counter Musk’s options argument, he might point out that Tesla’s stock has effectively tread water for almost three years while annual net income has gone from less than $1 billion to more than $12 billion over the same span. A check for a sliver of that, rather than an option on Tesla’s AI ambitions, might appeal more at this point.
That Tesla’s stock price is, unlike the Detroit automakers, overwhelmingly a function of growth expectations also makes it an enticing target for the UAW, as does the company’s integrated structure. Tesla has two major auto plants in the US, in California and Texas. Organizing just one would provide the potential to disrupt production growth significantly. Just look at the latest quarterly sales miss, blamed by the company on factory downtime for retooling.
For that reason alone, Tesla has all the incentive in the world to fiercely resist any renewed UAW push. And even if the union established a foothold, that would only set the stage for negotiations over pay and conditions, which would likely also be contentious and time-consuming. Musk’s long-standing push for automation and robotics would also get renewed impetus.
The UAW is gearing up for another crack at Tesla nonetheless, according to a recent report in the New York Times. In part, Fain may feel the combination of (pending) success in the current strike, Musk’s antics and Tesla’s segue from underdog to juggernaut means the time is now. He also must know that if his union doesn’t get out of Detroit soon, its days are numbered.
1Tesla had 127,855 employees at the end of 2022, of which half were in manufacturing roles, according to the company's Impact Report. Tesla's plants in Shanghai and Berlin reportedly had 20,000 and 9,000 employees each, leaving just under 35,000 in the US plants. Assuming approximately half of Tesla's vehicles were produced in the US (based on the company's factory capacity figures) and that workers put in 2,000 hours per year, the $20-$25 per hour cost difference with the three Detroit automakers equates to an implied advantage of between $2,154 and $2,692 per vehicle. Regarding the 30% wage increase, this calculation assumes wages account for about half of the all-in cost of employees at the Detroit three.
2Tesla discloses stock-based compensation related to cost of goods sold in the notes to its annual 10K filing. Absent any geographical breakdown, dividing this by its global manufacturing workforce of about 64,000 at the end of 2022 implies an average benefit of $9,292. Spread over an assumed 2,000 hours per year, that averages $4.65 per hour.
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