Tesla Inc (NASDAQ:TSLA) stock is pulling back after nearing all-time highs, and it’s possible that concerns about Tesla’s labor force are part of the reason for the modest decline in TSLA stock. Last week, it was reported that TSLA factory workers had contacted the United Auto Workers about creating a union.
One Tesla worker posted an essay online, criticizing working conditions at the company’s facility in Fremont, California. Tesla CEO Elon Musk replied angrily, stating that, “I find this attack to be morally outrageous.” For its part, the UAW has said that the decision to create a union is up to Tesla workers.
Fundamentally, the impact of a potential Tesla union on TSLA stock likely won’t be very significant — at least not directly. But, the kerfuffle over unionization highlights the potential political pitfalls that Musk and Tesla must navigate. In an increasingly polarized country, consumers are starting to act like voters — every day, and that implies some potential risks for Tesla stock.
The Fundamental Impact of a Tesla Union on Tesla Stock
It’s tough to parse out what a Tesla union would do to TSLA earnings. Management doesn’t break out precise wages, for instance. But, we can get close to a reasonable estimate. In 2014, Tesla told the state of Nevada that its Gigafactory would employ 6,500 employees, with annual total wages of $353 million.
The company has almost the same number of workers (6,200) at its Fremont plant, according to a December report, with plans to expand that plant and add another 3,100 jobs. A rough assumption that wages are relatively similar would imply that (post-expansion) potential Tesla union workers would earn at least $500 million per year in wages.
Considering Tesla’s current shipment status, that’s a large sum. Trailing 12-month sales are less than $6 billion. But, even with TSLA stock based on where Tesla is going, a wage hike could justify a material change to TSLA’s valuation. Even a 20% hike would add $100 million-plus in costs, or approximately $65 million per year after tax. That’s roughly 40 cents per TSLA share per year; at a 30x multiple, higher wages could take as much as $12 off the fair value of Tesla stock.
However, that’s an imperfect estimate for a number of reasons. Tesla’s focus on technology likely means the company will require fewer workers over time. Plus, TSLA can find other costs to cut to offset wage pressure, as many companies do.
Still, fundamentally, there is reason to believe that a Tesla union could have a modest impact on Tesla stock. It doesn’t look like unionization would ruin the company, as some commentators believe happened to Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) before the financial crisis. But, there is the possibility of a Tesla union having an impact on long-term earnings, and, as such, the long-term price of TSLA stock.