The deadline to reach an agreement between the UAW and the Big Three is 11:59 p.m. ET Thursday. UAW President Shawn Fain stated on Wednesday, “As it stands right now, all three are most likely to be struck unless we get a deal by September 14 at midnight.”

The demands include:

• Elimination of wage tiers
• Wage increases (see below)
• Restoration of cost-of-living allowance increases
• Increased benefits (better health care, traditional pension, 4-day work week, 32hr/week)
• Better protection for workers laid off over the long term due to the elimination of the gas-powered powertrain

As it stands, the UAW wants about a 35% wage increase, and the Big Three are offering between 17-20% increases.

It’s been reported (Axios, Washington Post) that going into the contract negotiations, Big Three employment wages (including wages, benefits, and profit-sharing) were an average of $66, compared to Tesla at $48.

If the UAW is successful at winning a 25% increase in wages, that would imply that the overall comp package is increasing by slightly less given dynamics around profit-sharing, resulting in a net increase of about 20%.

Furthermore, that implies that the Big Three labor costs would increase to about $80 an hour, or 67% higher than Tesla, underscoring Tesla’s growing cost advantage. While Tesla isn’t involved in the UAW’s negotiations with General Motors, Ford, and Stellantis, it’s still the elephant in the room and will likely result in an increase in pay for Tesla workers. My sense is it would result in a 15% increase.

Putting it together, all-in manufacturing labor costs for the Big Three will net out to about 40-45% higher than Tesla’s cost, making the climb to profitability in an EV world even more difficult for traditional car makers.

It is estimated that a 10-day UAW strike that shuts down the Big Three could cost carmakers, suppliers, and workers over $5 billion (according to the Michigan-based Anderson Economic Group).

Ford is already losing money on its growing EV line, Model e, and said it expects Model e to lose $4.5 billion for the full year, up from its earlier forecast of a $3 billion loss for all of 2023. It said the discounting in EV pricing was one of the main reasons for the new loss estimate. Additionally, Ford pushed back its goal to produce 600k EVs a year by the end of 2023 to sometime in 2024.

In the June quarter of 2023, Tesla sold about 10x more EVs than the Big Three combined. That production gap weighs on profitability given traditional auto has not reached production scale.

My bottom line: While the Big Three will be forced to pay more for labor, they cannot afford it. It will give Tesla more room to keep prices low which should result in negative EV margins for the Big Three for the next two-plus years.

Disclaimer