The United Auto Workers (UAW) strike in Detroit has brought attention to the larger forces shaping the future of the auto industry. While there are short-term demands for higher wages, the backdrop of the strike highlights the challenges posed by the transition to electric vehicles (EVs) and the retreat of globalization.
In theory, the shift to EVs offers opportunities for growth in a saturated market and the potential for reshoring manufacturing jobs. However, there are complications. For EVs to become affordable and widely adopted, the market needs to reach a large enough scale to benefit from economies of scale. China’s dominance in cleantech manufacturing, fueled by subsidies and lower costs, poses a significant obstacle. China’s cost advantage in manufacturing EVs is estimated to be as high as $10,000 per vehicle, making it difficult for other countries to compete.
Bringing the supply chains for EVs back to the US would be expensive, and higher wages demanded by the UAW further compound the issue. There is a tension between making EVs cheap and manufacturing them domestically. The US government’s efforts to protect domestic industries, such as investigating Chinese subsidies for EVs, highlight the strain in the industry.
The rise of EVs presents a profound challenge to both traditional automakers and the UAW. The transition to EVs requires a different manufacturing infrastructure, rendering much of the existing capacity obsolete. Tesla’s approach to simplified, automated manufacturing demonstrates the shift in labor requirements. This puts pressure on the UAW to secure as much as possible in the current paradigm, but also risks lagging behind in the future market.
While attempts are being made to protect domestic industries, it is essential to recognize the role of Chinese subsidies in building the EV supply chain. The future of the industry will require collaboration and adaptation to new realities.
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– ClearView Energy Partners