The United Auto Workers strike is almost three weeks old. Some of its effects on car stocks are predictable. Others aren’t.
About 25,000 workers are on strike, out of the roughly 145,000 UAW employees at
General Motors
(ticker: GM),
Ford Motor
(F), and
Stellantis
(STLA) combined. Another 4,400 or so have been laid off, but not because the companies are trying to retaliate against the union.
“Our production system is highly interconnected,” says Ford. “Which means the UAW’s targeted strike strategy has knock-on effects for facilities that are not directly targeted for a work stoppage.”
The battle is over wages and benefits amid high inflation. Workers are looking to improve their lives after enduring wage gains that haven’t kept up with inflation for the past few years. The Detroit Big Three auto makers are trying to keep costs down so they can invest in electric vehicles and make them as inexpensively as nonunion players including
Tesla
(TSLA) and
Rivian Automotive
(RIVN).
When the strike will end and what workers will get is anyone’s guess. Wells Fargo analyst Colin Langan used 45 days as his base case. The UAW struck GM in 2019 for 40 days.
Investors hate all the uncertainty, so, unsurprisingly, shares of the Detroit Three aren’t performing all that well.
Ford and GM shares are both down about 21% over the past three months, while the
S&P 500
is down about 3% over the same span.
Stellantis shares are actually up 7%, but that company is more global than Ford and GM, which means it is less affected by the strike. It also trades for less than four times estimated 2024 earnings, a low multiple that indicates investors aren’t all that excited about the future. The S&P 500 trades for closer to 17 times.
Tesla stock is down about 8% over the same span. That’s a touch worse than investors would expect given how the S&P 500 has performed. Telsa is much more volatile than the overall market.
Tesla isn’t getting the bump that investors might have expected from the possibility that competitors’ costs could rise faster than its expenses, which underscores how it is a variety of factors, rather than single events, that drive stock prices.
For Tesla stock, news that deliveries came in weaker than expected is a bigger deal than the UAW strike. Tesla delivered some 430,000 vehicles in the third quarter, while three months ago, Wall Street was projecting more than 470,000 vehicles. Tesla took scheduled production downtime to upgrade plants in the third quarter, but the delivery number still makes investors a little nervous about EV demand.
Rivian stock looks like a UAW winner. Coming into Thursday trading, the shares were up about 16% over the past three months, although the stock fell 12% in early Thursday trading after the company said it would sell convertible notes. Sales of convertible debt tend to push down stock prices because the notes can become more stock that dilutes existing shareholders’ stakes.
Toyota Motor
(TM) looks like another beneficiary. The stock is up about 5% over the past three months, but not because of optimism about costs or strategy. Lower production at the Detroit Three auto makers, which creates the potential for Toyota to gain market share, appears to be the key.
Baird analyst Luke Juke estimates that up to 250,000 vehicles of Detroit Three production could be lost due to the strike. Toyota sold roughly 590,000 units in North America in the third quarter, so the potential exists for it to pick up an amount of sales volume that would move the needle for the company. It could be a nice bump even if the benefit only lasts one quarter.
Toyota also has the advantage of a largely nonunion workforce in the U.S.
Investors should expect all these share trends to carry on while the strike is going on. They could unwind, at least to some extent, when the strike ends or looks likely to be resolved. That is what happened during past strikes.
Write to Al Root at [email protected]
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