Ford Motor Co F has reached a tentative new labor agreement with the United Auto Workers (UAW), while General Motors Co GM and Stellantis NV STLA continue negotiations.
The new deal by Ford could hold lasting implications for Tesla Inc. TSLA and its current advantages in the automotive industry.
What Happened: Ford and the UAW reached a tentative agreement on Wednesday which increases the top wage rate by more than 30% to over $40 an hour, including cost of living increases. Ford workers will receive an immediate 11% wage increase upon ratification of the agreement, and further increases will follow over the course of the four-year term of the contract.
General Motors and Stellantis have yet to reach agreements with the UAW, though talks continue.
Why It Matters: Days after the UAW strikes began, Wedbush analyst Dan Ives wrote, “The clear winner in this 'Game of Thrones' Battle between the UAW vs. GM/Ford is Musk and Tesla. Its biggest potential EV 313 competitors now face mounting costs/complexities in the years ahead depending on how this ultimately plays out."
Ford’s new labor agreement with the UAW will increase costs for the automaker, and while GM and Stellantis continue negotiations, increased production costs are nearly guaranteed.
Joel Levington, director of credit research at Business Insider, said, “Ford’s tentative labor agreement with the UAW may increase its costs by more than $900 million in its first year, based on an 11% raise in year one, putting additional pressure on the company’s efforts to enhance its mediocre profitability.”
According to Bloomberg, JPMorgan analyst Ryan Brinkman, who has an Overweight rating on Ford, estimated the deal is set to add $1.5 billion in annual costs to the automaker for the life of the labor contract.
Potential Tesla Effects: Tesla has been viewed as the clear winner amid the UAW strikes at the Big Three automakers due to several advantages resulting in larger profit margins for Tesla compared to the Big Three:
- Tesla currently employs over 127,000 workers, all of whom are non-unionized. According to a July 2023 report from Reuters, Tesla workers earn about $45 an hour in wages and benefits, compared to between $64 to $67 an hour at the UAW-represented Big Three automakers.
- According to the same Reuters report, Tesla earned $5,000 in operating income per vehicle for the second quarter of 2023 while Ford reported $3,220 per vehicle in the first quarter, and GM reported $4,400 per vehicle in overall pretax profit per vehicle for the first quarter.
- Ford CEO Jim Farley has said Tesla enjoys a $2,000 advantage in distribution costs because it does not have dealers it is required to share profit.
Related News: Tesla's Tough Stretch: Why Stock Is Set To Open Lower Today
What’s Next: The big question remains: Will the UAW attempt to unionize Tesla factories, and could it be successful?
Tesla CEO Elon Musk previously expressed his contempt for labor unions, including the UAW, and said in a post on X, “UAW slogan - Fighting for the right to embezzle money from auto works! … The UAW stole millions from workers, whereas Tesla has made many workers millionaires (via stock grants). Subtle, but important difference.”
Musk also expressed his belief that Tesla workers are happy and well-paid and even invited the UAW to hold a vote at their "convenience" at the EV maker’s Fremont factory in California to see if they could win the loyalty of Tesla workers.
New York Times auto industry reporter Jack Ewing wrote in September, "As representatives of the national union demand 40% wage increases from the Detroit automakers, along with significant gains in benefits, they are certainly thinking about the signal that any deal would send to nonunion workers at Tesla."
TSLA Price Action: As investors wait to see if the UAW makes an attempt to unionize Tesla workers amid the turmoil in the automotive industry, Tesla’s stock is down more than 15% over the last month and is currently $209.24 per share on Thursday at publication, according to Benzinga Pro.
Image: Courtesy of Tesla, Inc.
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