The United Auto Workers strike has entered its third week, leaving both predictable and unforeseen effects on car stocks.
Approximately 25,000 workers are currently on strike out of the total 145,000 UAW employees at General Motors (ticker: GM), Ford Motor (F), and Stellantis (STLA). It's worth noting that another 4,400 employees have been laid off, not as a retaliatory measure by the companies, but due to their heavily interconnected production system.
The crux of the battle revolves around wage and benefit improvements in the face of high inflation. Workers seek to enhance their quality of life after facing years of wage gains that have failed to keep pace with inflation. Meanwhile, the Detroit Big Three automakers are eager to control costs, allowing them to invest in electric vehicles and produce them affordably, similar to nonunion players like Tesla (TSLA) and Rivian Automotive (RIVN).
As for when the strike might conclude or what concessions workers may secure, it remains uncertain. Wells Fargo analyst Colin Langan has speculated a base case of 45 days, based on the UAW's 40-day strike against GM in 2019.
Naturally, investors dislike such uncertainty, leading to a slump in shares for the Detroit Three automakers. Over the past three months, both Ford and GM shares have experienced a decline of around 21%, while the S&P 500 itself has decreased by a mere 3%.
Stellantis stands as an exception, with shares actually seeing a 7% increase. This is partly due to the company's international reach, which reduces its vulnerability to the strike's impact. Additionally, trading at less than four times estimated 2024 earnings, Stellantis lags in terms of investor enthusiasm compared to the S&P 500's multiple of around 17 times.
Tesla's stock has encountered an 8% decline during this timeframe, slightly worse than expected considering the performance of the S&P 500. Notably, Tesla's volatility exceeds that of the overall market.
Interestingly, Tesla hasn't received the anticipated boost from the potential cost hikes faced by its competitors. This demonstrates how multiple factors, rather than isolated events, influence stock prices.
Tesla Stock Deliveries Fall Short, Raising Concerns
Tesla stock has taken a hit as news of weaker-than-expected deliveries overshadowed the ongoing UAW strike. In the third quarter, Tesla delivered approximately 430,000 vehicles, falling short of Wall Street's projection of over 470,000 vehicles. Despite scheduled production downtime for plant upgrades, investors are now expressing nervousness about the demand for electric vehicles.
Rivian Stock Showing Promise Amid UAW Strike
While the UAW strike has negatively impacted many auto industry stocks, Rivian appears to be an exception. Over the past three months, Rivian's shares have risen by about 16%. However, early trading on Thursday saw a 12% decline in the stock price after the company announced its plans to sell convertible notes. Typically, the sale of convertible debt leads to a decrease in stock prices, as it dilutes the share of existing shareholders.
Toyota Motor Gains Market Share Opportunities
Toyota Motor is poised to benefit from lower production at the Detroit Three auto manufacturers. As a result of the UAW strike, Baird analyst Luke Juke estimates that up to 250,000 vehicles of Detroit Three production may be lost. Currently, Toyota has experienced a 5% increase in stock value over the past three months. This growth can largely be attributed to the potential for gaining market share in light of reduced competition from U.S.-based manufacturers.
In North America alone, Toyota sold approximately 590,000 units in the third quarter. With such a significant decline in production by its competitors, Toyota has the opportunity to capture additional sales volume that could make a significant impact on the company's performance. Additionally, Toyota's advantage lies in having a predominantly nonunion workforce in the U.S.
Impact of the UAW Strike on Stock Trends
Investors can expect these trends in stock performance to persist while the UAW strike continues. However, it is also likely that these trends will reverse or soften once the strike comes to an end or shows signs of resolution. Past strikes have followed a similar pattern, with stock prices returning to a more stable state after labor disputes are settled.