Tesla will gain from higher Detroit 3 labor costs, analysts say

Tesla Inc. is losing a high-profile customer after Democratic Congresswoman Alexandria Ocasio-Cortez vowed to ditch her Model 3 for a union-made electric vehicle in a sign of solidarity with striking UAW workers.

But Tesla is likely to gain in other ways from the dispute, analysts say, as its rivals become saddled with higher labor costs once the union settles with General Motors, Ford Motor Co. and Stellantis.

"In our view, Tesla's the biggest winner," said Garrett Nelson, vice president of equity research at CFRA.

"Already, their labor costs were an estimated 35 percent to 40 percent lower than the Detroit 3, and that cost advantage will be widening when a deal is eventually reached," Nelson told Canadian broadcaster BNN Bloomberg on Monday.

Nelson estimated that the union is asking for an overall wage increase of about 36 percent compared with about 21 percent offered by the automakers. Whatever the final number is when a deal is reached, it's going to make the EV transition more costly for the Detroit 3 compared with Tesla, which only makes EVs.

"This strike, in our view, is really going to hamper the Detroit 3's ability to compete in the EV market, just with the much higher labor costs," Nelson said. CFRA rates Tesla stock a buy with a 12-month price target of $325 per share. Tesla's stock closed Tuesday at just over $244 per share.

Tesla already has about 60 percent of the U.S. market for full battery-electric vehicles over the first three quarters of this year, according to an estimate Tuesday by Kelley Blue Book.

And Tesla's healthy profit margin allowed it to reduce its average vehicle prices from nearly $70,000 in July 2022 to just under $55,000 in July this year, Kelley Blue Book data shows.

Tesla CEO Elon Musk has said repeatedly this year that the automaker is willing to sacrifice some profits to reach its 50 percent annual sales growth target. Experian said this month that Tesla's U.S. new-vehicle registrations in the January to July period were 50 percent higher than the same period last year, at 390,377.

Tesla's price cuts have pressured rivals, including Ford, to increase incentives on EVs that were already losing money. Ford said in March that it expected its EV business to lose $3 billion this year.

To be sure, Detroit automakers have a slew of EVs that will launch in coming years that are expected to chip away at Tesla's market share.

Ocasio-Cortez, who said on "Face the Nation" on Sunday that she supported the UAW's demands, was asked why she owns a Tesla, which is not made by union workers. The New York representative said she bought the car during the pandemic because it had the range to drive from New York to Washington, D.C.

"But that was prior to some of the new models coming out on the market that had the range available," Ocasio-Cortez said, according to the CBS News transcript. "But we're actually looking into trading our car now. So we're looking into it, and hopefully we will soon."

The few union-made EVs now on the market include the Chevrolet Bolt, Cadillac Lyriq, Ford F-150 Lightning, Chevrolet Silverado EV and GMC Hummer EV pickup and SUV. Stellantis does not make any full BEVs in the U.S. The Ford Mustang Mach-E is made in Mexico.

The EV market is critical to the future of all automakers, and legacy brands are pouring billions of dollars into the development of new electric models and the construction of battery factories.

Cox Automotive estimated in its third-quarter sales forecast that EVs would have an 8 percent share of the U.S. light-vehicle market, with about 308,000 deliveries. Year-over-year EV sales were likely to be higher by 80 percent compared with the same period last year, and full-year EV sales were expected to break 1 million for the first time.

"Even though Tesla is expected to give up some percentage points in share, there's little doubt Tesla remains a major force in today's EV market," said Stephanie Valdez-Streaty, director of industry insights at Cox Automotive. Cox presented its third-quarter sales forecast Tuesday.

Gene Munster, managing partner at Deepwater Asset Management, estimated that once the Detroit 3 and the UAW reach an agreement, Tesla's labor costs will be 48 percent lower compared with the Detroit automakers.

Munster said last week on the social media platform X, formerly Twitter, that when pension plans, inflation protection and profit-sharing are included, UAW worker labor costs could rise 64 percent to $105 per hour.

In contrast, Munster puts Tesla's average labor cost at $55 per hour, which includes a 15 percent increase "likely in the next six months."

Notably, Munster's estimate does not include Tesla's cost of stock options that workers receive because, he said, "it's difficult to predict where TSLA [stock] will be in a year."

In a Sept. 14 comment on the X platform, Musk claimed Tesla workers were better paid than UAW workers, "but performance expectations are also higher." He did not provide any data to back up his claims.

Musk also said "quite a few of our factory techs who work on the line have become millionaires over the years from company stock grants." Tesla's stock price has risen by nearly 1,300 percent over the last five years. But it's down 14 percent over the last 12 months.

Musk also took a shot at union demands for vacation days and a reduced workweek. "Is anyone gonna be around to make the actual cars?" he wrote Sept. 17.