Tesla benefits from the US auto workers' strike.

If US automakers are forced to raise wages as demanded by unions, Tesla will have an even greater price advantage because it will be outside this "wave."

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

Under pressure from unions, the three companies are expected to raise wages for their workers. The question now is how large the increase will be. Currently, 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 hikes.

Labor costs (including wages and benefits) at companies in Detroit (the center of car manufacturing in the US) are estimated to average $66 per hour. At Tesla, this figure is $45. Wells Fargo estimates that if all of Fain's conditions are met, American automakers would have to increase labor costs to $136 per hour.

Workers outside a Ford plant in Detroit, Michigan. Photo: WSJ — Workers outside a Ford plant in Detroit, Michigan. Photo: *WSJ*

There are fundamental differences in benefits between Tesla workers and UAW members. UAW members receive profits-based bonuses from the company, while Tesla workers have stock options. Over the past few years, Tesla's stock has surged, although it has also experienced periods of volatility. This year, its price has more than doubled.

Fain argued that the old labor contracts hadn't kept pace with inflation, putting their members at a disadvantage. Their sacrifices had helped automakers become profitable in recent years. Ford responded that the UAW's demands were "twice" the company's current labor costs. Their labor costs are also currently higher than Tesla, Toyota, and many other foreign automakers in the U.S.

To date, many analysts believe that American automakers will have to accept increased costs. "The bigger problem is that it will further increase the pressure on their already challenging transition to electric vehicles," warned Dan Levy, an analyst at Barclays, to investors.

Last week, when asked about Tesla's cost advantage, Fain also reacted angrily. "I don't care how many spacecraft Elon Musk builds to go into space or anything like that. I only care that the working class gets a fairer share of the economic pie," he said.

For years, American automakers have complained that their Asian competitors, not bound by the UAW's regulations, benefit from lower labor costs. They argue that this allows them to lower car prices and attract buyers.

The UAW also attempted to establish a union at Tesla. This occurred when the automaker's workers went on strike in 2017 and 2018, amidst the company's struggle with having only one factory in San Francisco and producing the Model 3. However, these efforts were unsuccessful.

Musk also asserted that the stock option policy provides Tesla workers with the best compensation in the industry. He said that many workers "become millionaires thanks to stock options."

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

"We encourage listening to music and doing something fun. It's important to make workers want to come to work. We pay higher wages than the UAW, and labor productivity is higher too," Musk said in a recent X post.

Established automakers in the US are simultaneously trying to restructure costs and participate in the expensive transition from gasoline to electric vehicles.

In March, Musk announced plans to gain an advantage by reducing production costs for his next car models by 50%. This is an ambitious goal, requiring advanced technology and many other changes.

Tesla's CEO's moves this year also show how the company can leverage its cost advantage to participate in the global price war. In July, Tesla announced a 20% increase in second-quarter profits, despite having lowered car prices since the beginning of the year. Meanwhile, with significant losses from electric vehicles, Ford announced it would slow growth in this segment.

Over the past four years, American automakers have raised wages for their workers, with the highest increase being 20%. However, UAW President Shawn Fain wants an increase of more than 30%, down from his initial demand of at least 40%. This union currently represents 146,000 auto workers in the United States.

Ha Thu (according to WSJ)

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