Tesla And Toyota Could Emerge As Winners Of The Unprecedented UAW Strike

The UAW is threatening to launch additional strikes if agreements with Stellantis N.V. STLA, General Motors GM and Ford Motor F are not reached by noon EDT, September 22nd. On Monday, UAW President Shawn Fain announced an expansion of strikes if serious progress isn’t made. Out of UAW’s 146,000 members who work at the Big Three, approximately 12,700 workers are on strike as a result of the union’s coordinated U.S. action at the Wentzville, Toledo and Wayne plants. No one wins in a strike, and although such an unprecedented walkout is expected to have ripple consequences across the global supply chain, the misery of the Detroit Big Three automakers could benefit Toyota Motor TM and Tesla Inc TSLA.

Layoffs

Last Friday, Ford temporarily laid off 600 workers at Michigan plant hours after other employees had walked out. On Wednesday, Stellantis joined GM in furloughing some employees because of the ripple effects of the strikes such as parts shortages and storage constraints. Stellantis laid off about 370 workers at three parts factories in Ohio and Indiana that supply its Jeep plant in Toledo due to storage constraints. These plants make parts for Jeeps built at the Toledo Assembly Complex which is on strike.

As the strike deepened, GM and Stellantis laid off more than 2,000 additional workers. The workers that GM laid off due to the strike will not be eligible for the supplemental unemployment benefits they would normally get from the automaker. Also on Wednesday, GM was forced to halt production at its assembly plant in Fairfax Kansas due to a shortage of essential stampings that would have been supplied by the Wentzville facility whose workers walked out last week.

No One Wins In A Strike, Especially Not Automakers

If the strike deepens, analysts are expecting plants that are making high-margin pickups, including Ford F-150, GM Chevy Silverado and Stellantis Ram to be next on the walkout list. In a Thursday’s note, Morgan Stanley analyst estimated that a full month of lost production would cost the Big Three automakers $7 billion to $8 billion in lost profits. But considering the speed of their EV rivals, there's much more to lose as these setbacks only expand the gap between the Detroit automakers and the EV king, Tesla. S&P estimated that the strikes that began on September 15th could last several weeks, potentially trimming third-quarter U.S. gross domestic product by 0.39% while wreaking havoc across global supply chains.  

Corporate Greed Or EV Investment, Either Way, The Two Sides Remain Far Apart

On Wednesday, GM President Mark Reuss rejected claims of the union that record profits are feeding corporate greed as they have been reinvested in the automaker’s electric turnaround. The two sides remain far apart on the key issue as the UAW is demanding a 40% price hike, while GM, Ford and Stellantis have proposed 20% raises over four and a half years and find UAW’s demand untenable. But UAW workers want to fix a large gap between new and older employees as some are being forced to work two jobs to make ends meet.

Meanwhile, Tesla And Toyota Are Winning

The ongoing walkout at midsized truck factories are benefiting Toyota Motor which does not have unions at its U.S. factories. Moreover, Toyota is about to launch redesigned Tacoma pickup trucks, exploiting this lucrative segment while its Detroit competitors face production setbacks and losses. Another winner is the non-union EV king Tesla who is given an opportunity to claim complete EV victory because the potential hike in wages and benefits that its Detroit competitors might be forced to give out would only strengthen Tesla’s leadership and amplify the cost structure advantage it has over its Detroit rivals.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.