The UAW Labor Contract and Battery Pack Economics: A Dual Influence on the US’ Electric Vehicle Landscape 

The American electric vehicle (EV) sector is at an inflection point. Two key developments — the recent United Auto Workers (UAW) labor contract and the evolving costs of EV battery packs — are emerging as significant drivers of change. 

The UAW labor contract, a groundbreaking agreement with the Big 3, is poised to exert transformative pressure on EV manufacturing. The contract’s implications are multifaceted:

  • Empowerment of Workers: It provides a framework for workers at non-union EV establishments, including industry giants like Tesla and Toyota. There's now a palpable push for these workers to either join the UAW or form their own unions, using this contract as a template for improved wages and conditions.
  • Rebalancing Competitive Dynamics: Non-union plants, which historically enjoyed a cost advantage over their unionized counterparts due to lower wages and benefits, may now face challenges. The UAW contract could compel these plants to enhance pay scales and elevate working conditions, potentially leveling the playing field.
  • Fostering Domestic Production: One of the standout features of the contract is its emphasis on boosting domestic production of EVs and associated batteries. It not only supports the shift towards a cleaner auto industry but also covers workers at battery production facilities co-owned by car manufacturers and third-party companies.
  • Economic and Environmental Ripple Effects: A resultant uptick in EV supply and demand could bode well for both the environment, given the eco-friendliness of EVs and the economy, with job creation in the green sector.

Concurrently, the cost dynamics of EV battery packs, the heart of any EV, are undergoing significant flux. While technological progress has consistently driven down these costs, unforeseen global events are challenging this trajectory. The COVID-19 pandemic’s supply chain disruptions, combined with geopolitical tensions like Russia’s invasion of Ukraine and trade wars, have escalated the prices of essential battery components such as nickel, lithium and aluminum. These raw materials traditionally constitute over 65% of a battery pack’s cost, making them critical to the final price tag of EVs.

With these material costs expected to remain elevated in the foreseeable future, EV manufacturers may face margin pressures, potentially impacting the end consumer price. As the US EV industry navigates this pivotal phase, the synergy of the UAW contract and battery cost dynamics will be instrumental. Their combined influence will shape not only the manufacturing ethos but also the affordability and adoption rate of EVs in the American market.

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For more information on this topic, please contact a member of Withum’s Automotive Manufacturing Services Team.