Representing a significant turnaround following more than four decades of declining influence for auto unions in the US, after an unprecedented strike, the United Auto Workers (UAW) union recently nabbed fresh contract deals with the Big Three Detroit automakers.
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The agreements involve an instant 11% salary increase and the reinstatement of the cost of living adjustment (COLA), which the union relinquished in 2009.
Morgan Stanley analyst Adam Jonas thinks the “potentially open-ended nature of COLA adds uncertainty to the labor inflation picture over the long term.” According to Ford’s calculations, the UAW contract is anticipated to contribute an additional $850 to $900 per unit to the car’s cost. That constitutes roughly 200 basis points of margin before any mitigating measures are taken.
Free from the influence or interference of an activist union, while the strike was ongoing, Tesla (NASDAQ:TSLA) was seen as a beneficiary of the disruption, but now that it is over, how will the EV leader be affected?
Well, on the one hand, Jonas expects auto companies to dial down their EV strategies. “Look for car companies to tout the ‘agility’ of their EV capex budgets during 4Q results season,’ says the analyst on the matter.
That said, the UAW leadership has made known more manufacturers will be ‘targeted for organization.’ A number of international auto giants have already taken proactive measures to forestall labor pressure by implementing wage increases. Toyota and Honda, for instance, have committed to elevating pay by double-digits next year for U.S. factory workers. Additionally, Hyundai has announced a 25% pay rise for factory workers to be implemented by 2028.
So, what would it mean should Tesla become the UAW’s next target? “We estimate Tesla has between 45k and 50k factory workers in the US between Fremont, Austin, and Reno (higher cost of living locations relative to the average UAW worker) representing a combined all-in US labor bill of between $4 bn and $5bn,” Jonas noted.
All told, Jonas reiterates an Overweight (i.e., Buy) rating for TSLA shares, backed by a $380 price target. Investors could be sitting on gains of 57%, should Jonas’ forecast play out over the coming months. (To watch Jonas’ track record, click here)
Tesla regularly elicits a wide spectrum of opinions on Wall Street and that is also the case right now. Based on a mix of 14 Buys and Holds, each, in addition to 6 Sells, the stock claims a Hold consensus rating. The forecast calls for one-year returns of a modest 3%, considering the average target stands at $248.93. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
