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Business News/ Auto News / EVs Will Hit Detroit Harder Than a UAW Raise
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EVs Will Hit Detroit Harder Than a UAW Raise


While pay increases following the strike will take the shine off automakers’ margins, their electric vehicles are still making huge losses.

a bigger bankruptcy risk comes from the EVs that Musk pioneeredPremium
a bigger bankruptcy risk comes from the EVs that Musk pioneered

What kind of raise can Detroit afford to give auto workers? It depends partly on when American car buyers go electric.

The United Auto Workers strike entered its third week Friday with the threat of further escalation. There have been few recent signs of progress in the union’s negotiations with the Detroit automakers, which argue that its demands are untenable.

While President Biden walked a picket line in support of the UAW this week, the manufacturers got an endorsement from their nemesis Elon Musk. Tesla’s chief executive said on his social-media platform X that the combination of a 40% pay rise and a 32-hour working week was a “sure way to drive GM, Ford and Chrysler bankrupt in the fast lane."

But a bigger bankruptcy risk comes from the EVs that Musk pioneered. While the traditional pickup trucks and sport-utility vehicles Detroit churns out today are profitable enough to absorb a good chunk of the UAW’s demands, the EVs it is just starting to produce can’t even cover today’s pay, let alone the package under negotiation.

We don’t know where the UAW’s latest offer lies, but The Wall Street Journal last reported that the union was seeking a raise in the mid-30s percent range over the four-year life of the contract. Compounding might increase the actual gain, but a 35% increase would add roughly $2 billion to each automaker’s annual operating costs, or a bit more than 1% of revenues. The impact would be highest for Ford, which employs the most UAW workers, and lowest for Stellantis, which has a more global footprint.

A raise isn’t the only thing the UAW wants, of course. The most costly provision in its original negotiating position, according to a Wells Fargo analysis, was the 32-hour working week for 40 hours of pay—the point Musk picked up on. But this unusual demand might best be seen as an extreme position useful for negotiating rather than a realistic ambition. The same could be true of the union’s call for a return to defined-benefit pensions for all.

The terms most important to UAW members after the wage increase are likely cost of living adjustments and the abolition of wage tiers. These will add to the bill for automakers, but much less so than the basic wage increase, according to Wells Fargo. So the overall impact of a deal will probably be significant but not crippling, perhaps shaving at most 2 percentage points off the industry operating margin.

The effect of electric vehicles could be far greater. This is clearest in the accounts of Ford, which now split out EVs. The “Model e" business lost almost $6 for every $10 of Ford F150 Lightnings and Mustang Mach Es that it sold in the second quarter. The margin should improve as production increases, and particularly when Ford starts making its second-generation EVs in 2025. Still, there is no clear pathway toward Detroit’s EVs achieving anything like the same profitability as its traditional products.

The quickest road to higher EV margins, as Tesla showed, runs through China. Ford would like to license Chinese low-cost battery technology but faces opposition in Washington. In what looked like a bargaining tactic, the company this week said it paused construction work on a $3.5 billion battery plant it is building in Michigan. The government hasn’t yet decided whether the licensing approach should exclude Ford from its new EV tax credits, which it has made conditional on a China-free supply chain.

As Ford negotiates on two fronts to keep costs in check, the big unknown is how quickly Americans will embrace EVs in the categories Detroit dominates: pickup trucks and full-size sport-utility vehicles. It is early days: F-150 Lightnings accounted for 2% of all F-series sales in the eight months through August. Rivian, the only EV startup focused on Detroit’s niche, expects to produce just 52,000 vehicles this year. And Tesla still isn’t selling its “Cybertruck."

When the UAW contract now under negotiation expires in four years’ time, it might be a bit clearer what the Detroit Three can actually afford looking ahead. Until then, the most rational outcome for today’s talks, albeit not a likely one in an increasingly political negotiation, would be generous profit-sharing on top of an inflation-linked wage increase. Then the pie would be equitably shared however it turns out.

Write to Stephen Wilmot at

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