A combustion engine has about 2,000 moving parts. An electric motor, by comparison, has about 20. The economics of making and selling electric vehicles, however, are proving far trickier to cobble together than their supply chain might suggest.
Detroit’s recent standoff with the United Auto Workers union has added another wrinkle. After coordinated strikes lasting six weeks, the UAW reached agreements with Ford, Stellantis and General Motors that would bring pay up by as much as 33% over the life of the contracts. The deals are elevating wages outside the union tent – Toyota immediately raised hourly rates for its U.S. assembly workers – and the UAW is planning an aggressive push to unionize factories run by Volkswagen, Hyundai and Tesla.
As both sides dig into the fight over the future of auto manufacturing, the results stand to impact how many EVs make it onto American roads and how much they cost.
“For folks interested in green, this is just going to be a longer game than they thought,” said James Womack, research director of MIT’s International Motor Vehicle Program and founder of the Lean Enterprise Institute.
One of the many purported advantages of electric vehicles was the assumption that they would require less work to put together. In practice, though, EV assembly isn’t proving much more efficient than that of gas-burning cars – at least not yet. The labor advantage, long seen as critical to keeping down costs and prices on electric models, probably won’t be as meaningful as auto executives had anticipated, especially if they have to raise wages.
It’s also still unclear how widespread that wage growth will be. Most workers building lithium-ion batteries for the Big Three do so as part of joint ventures using nonunion labor. General Motors works alongside LG Energy Solution, while Ford Motor paired up with South Korea’s SK On and Stellantis joined forces with Samsung SDI. The partnerships were a quick and tidy way for Detroit carmakers to gain competency and reduce risk, but the UAW has called them a ploy to cut labor costs.
“The Big Three have made their intentions clear, as they attempt to exploit the transition to electric vehicles to create a race to the bottom,” the union wrote in a recent white paper.
Getting these joint-venture factories into the UAW was a priority for President Shawn Fain, who did score some wins at the negotiating table. While the agreements don’t pull joint-venture plants into the union directly, new joint-venture employees will get 75% of the pay rates in the union contracts. Fain told Bloomberg that current GM and Stellantis employees could be “leased” to their respective joint ventures, an arrangement that would leave their pay intact. The two companies also agreed to a “card check” process to make it easier for new workers at joint ventures to unionize.
Ford Motor, however, resisted Fain’s battery push; Chief Executive Officer Jim Farley accused the union of “holding the deal hostage over battery plants.” Ford isn’t discussing the specifics of its current agreement, but a brief from the union says it allows some union workers to transfer into some of the joint-venture plants. A gaggle of proposed battery factories, however, remains up in the air.
Fain told Bloomberg he’s confident about folding all Big Three joint-venture battery plants into the union tent by 2028, though he conceded the standoff with Ford “could get ugly.” Ford, GM and Stellantis declined to answer questions for this article, noting that their workers have yet to ratify the new union agreements.
In the end, more union workers touching an electric vehicle will make for a more expensive electric vehicle. That would give the Big Three, which are already pumping the brakes on their EV transitions, reason to slow them further. The pay discrepancy might also put Detroit EVs at an even larger disadvantage to Tesla, the battery-powered gorilla that employs tens of thousands of nonunion workers in California, Texas, Nevada and New York.
Exacerbating the cost issue: Carmakers have yet to realize the labor efficiencies they expected to find in EVs. In 2017, Ford posited its electric vehicles would require 30% less labor than their gas-burning cars. Yet Boston Consulting Group (BCG) says EVs to date have required almost as many man-hours to produce as internal combustion vehicles, in part because car companies are still ironing out the kinks on new processes and automated systems. In many of the new U.S. battery plants, for example, more than 20% of the product has to be scrapped, according to Nathan Niese, BCG’s global lead for EVs and energy storage.
“There’s just as much art as there is science,” Niese said. “Net-net, we’re talking about a couple percentage points difference in labor hours.”
A recent study by researchers at Carnegie Mellon University found that manufacturing EV motors and batteries required roughly double as many man-hours as an internal combustion engine – up to 24 hours per machine.
“We were pretty surprised,” said Turner Cotterman, the lead on the report and an analyst at McKinsey & Co. “Across all scenarios we tested for … there was more labor in EV manufacturing than in [internal combustion] manufacturing.”
The positive for EV champions is that the share of a car’s cost that goes to people – as opposed to robots, huge buildings and other nonhuman capital – has fallen drastically and will continue to do so. That means wage fluctuations, however widespread they may be, are less likely to impact pricing than other aspects of the EV production process.
More critical to carmakers than keeping wages low is scaling up production, driving down battery costs and increasing the share of usable product coming out of factories. “I don’t want to be flippant, but in the cost of a battery, labor is on the order of 3 to 5%,” Niese said. “It is a headwind, while also not being too much of a headwind.”
Meanwhile, the price of internal combustion cars is sure to climb. BCG estimates drivers will be paying between $800 an $1,000 more per vehicle when the new wages start flowing – regardless of whether the car burns gas or shuffles electrons around.
Though demand appears to be slowing a bit, EV sales are still increasing at a brisk pace. The share of new vehicle sales that are electric is almost 1 in 4 in California, the No. 1 car market in the U.S.
That leads the nation, but not by much. Colorado, for instance, posted 17% EV share in the most recent quarter.
“The strike definitely complicates things,” said Ingrid Malmgren, policy director of Plug In America, a nonprofit advocacy. “And it’s not happening as quickly was we’d like … but nobody is saying ‘Yeah, we’re going to stick with gas.’”