The Changing Car Industry and the UAW Labor Struggle

The car industry is undergoing significant changes, leading to a major labor struggle for the United Auto Workers (UAW).

Stellantis, in partnership with Samsung SDI, has recently announced the location for a second battery plant in the U.S. This development is pivotal in determining the representation and compensation of workers involved, and it lies at the core of the ongoing UAW labor dispute with Detroit Three auto manufacturers.

This new battery plant will be co-located with another facility currently under construction in Kokomo, Indiana. Together, these two plants will have a combined annual capacity to produce approximately 67 gigawatt-hours of lithium-ion electric-vehicle batteries. Such output could power up to a million electric vehicles per year. It is important to note that different electric vehicles have varying battery pack sizes depending on their dimensions and desired range.

In line with the industry trend, more battery plants are emerging within the United States. Traditional automakers and electric vehicle manufacturers like Tesla are keen on controlling the production of their batteries and battery packs, similar to how they manage engine and transmission manufacturing.

However, automakers are enlisting the support of companies with expertise in battery production, such as SDI or LG Energy Solution. This collaboration introduces a complex situation for laborers. Some of these joint ventures are treated as suppliers by the automakers. Consequently, if workers at such joint ventures vote for union representation, they would need to negotiate a new contract with an auto supplier, rather than being treated as assembly line workers at an automaker.

Unsurprisingly, the union is not satisfied with this arrangement. It is one of the key reasons why they have initiated strikes against General Motors, Ford Motor, and Stellantis.

UAW Wins Battle for Battery Plant Workers' Rights

UAW President Shawn Fain recently announced a significant victory for the union, declaring that GM has agreed to treat battery plant workers with the same rights as any other GM employee covered by a UAW labor contract. This is a crucial step in the ongoing battle over battery plants, as Ford recently halted production at a battery plant in Michigan. One of the reasons behind this decision is the uncertainty surrounding cost structures and whether the UAW will demand that these employees work under the rules specified in the broader Ford-UAW labor deal.

Unfortunately, Stellantis, another major player in the industry, has yet to respond to inquiries about its plans for UAW representation at its battery plants. However, it is clear that electric vehicles (EVs) are rapidly gaining traction for several reasons. Firstly, electric cars are becoming more affordable and advanced in terms of technology. Additionally, auto manufacturers are heavily investing in EV production to meet the growing demand. As evident from Stellantis' $3.2 billion expenditure on a new battery plant, these companies aim to streamline costs to ensure the profitability of manufacturing EVs.

Resolving the issue of union representation within battery plants poses a significant challenge, which is why a strike has ensued. As of Wednesday's trading, Stellantis stock has seen a positive increase of approximately 12% over the past three months, while Ford and GM shares have faced declines of about 19% and 18% respectively. On the other hand, the S&P 500 has experienced a comparatively modest decrease of 1% within the same timeframe.

Notably, the strike has negatively impacted Ford and GM shares, while Stellantis has been relatively unaffected due to its more global presence as well as its more affordable stock price. Stellantis shares currently trade at less than four times the estimated 2024 earnings, whereas GM and Ford shares trade at less than five and seven times respectively.