Elon Musk's $41 billion wipeout is coinciding with a revolution in Detroit: Union workers are winning and EVs are losing
As much as Elon Musk is looking to push his overly vocal keyless vehicles onto the nation, the electric car just doesn’t seem to be starting. And there’s another harbinger of the sci-fi EV future going off rails, look no further than Detroit and its very retro kind of auto revolution: A union-led revival of middle class wages.
Over in Michigan, United Auto Workers employees are on the brink of victory after 44 days of striking for better wages and a slice of the big three’s massive profits from the past couple of years. It’s no secret that wages have stagnated since the 1970s, the last time American unions roared loudly, with the median wage barely budging when adjusted for inflation. And even though union membership is just 10% of all wage and salary workers nationwide, according to the Bureau of Labor Statistics, the ones remaining in the blue-collar field are about to end a historic strike with a historically large wage increase. First Ford, then Stellantis and now General Motors have all agreed to the same deal with the UAW: a 4.5-year contract that introduces 25% general wage increases and cost of living adjustments that bring total pay raises up to 30%.
The pressure to pay up has caused the big three to let go (or at least ease up) of one of their favorite toy hot wheels— the shiny, game-changing electric vehicle. And that’s when it’s impossible to ignore Elon Musk and Tesla’s rough earnings season, as the market wakes up to the fact that it’s probably a car company, after all, not a tech firm. Musk is $41 billion less richer as a result.
Elon Musk and EVs’ very bad, no-good October
In Muskville, an abysmal Q3 earnings report knocked its icon off his ever-slipping tower. After earnings revealed margins of a distinctly Detroit-flavored variety, Tesla shares dropped from $255 per earnings to $197, trimming the worth of Musk’s 715 million shares from the ridiculous $182 billion to the merely absurd $141 billion.
It isn’t a great sign for the EV crowd, to say the least. “We’re transitioning to a brand new technology,” Jessica Caldwell, head of insights at Edmunds, told Fortune. “It’s expensive. It requires people to have a different relationship with their vehicle that has been largely unchanged for decades.”. But the Big Three car manufacturers increasingly sound like they can’t quite afford the EV revolution and the union’s new wages. It also might be an easy excuse to throw in the towel on EVs, at least to an extent.
The new contract with the UAW will likely cost Ford up to $2 billion per year in wages, per analysis from Barclays. While that’s just 1% of its revenue figure, it’s a major chunk of profits, which came at $1.2 billion last quarter. And Ford would have been more profitable if not for its EV efforts. Even so, it’s not a struggling company, as they were able to pay CEO Jim Farley $20 million just last year.
Still, EV is a straggler. This past spring, Ford revealed that it lost $722 million while wading into the business, losing $60,000 for each car sold. This October, after Ford became the first of the Big Three to reach a deal with the UAW, it kicked the can down the road on its EV dreams, indefinitely postponing a $12 billion investment on electric vehicles.
Finding less green in the (environmentally) green cars than anticipated, General Motors is also scaling back and giving up its plan to build 400,000 EVs from 2022 to 2024. Even with President Biden’s backing of the sector and the widespread hype that EVs would replace most gas guzzlers by the 2030s, the math isn’t working for Detroit right now—or Elon Musk.
Still, Biden’s goal is to have 50% of all vehicles be electric by 2030. It’s not one thing or another per say, as competitive workers pay or EVs don’t stand diametrically opposed to each other. But for now, it seems as if the big three are pumping the brakes on Biden’s dreams of green cars in order to make up for the cost of a new contract. And with cheap EVs flooding the market in China, although not yet available domestically, it’s not clear how the math is going to work out for Tesla and the Big Three.
But Detroit’s union has won a 30% raise through 2028 and they’re not done yet—as UAW president Shawn Fain told members that Toyota, Honda and Tesla are next. “One of our biggest goals coming out of this historic contract victory is to organize like we’ve never organized before,” Fain said on a Facebook livestream, as reported by The New York Times. “When we return to the bargaining table in 2028, it won’t just be with the Big Three. It will be the Big Five or Big Six.”
[This report has been updated to reflect an increase in Tesla’s share price from $196 to $197 in intraday trading.]