The UAW strike, which commenced today, is poised to have far-reaching consequences, extending beyond the immediate disruption faced by automakers such as GM, Ford, and Stellantis. Its ripple effect is likely to reach tech companies and, notably, chipmakers, as the modern automobile is increasingly reliant on a complex web of semiconductor technology.
To comprehend the potential fallout, one must first trace the impact down the supply chain. Modern vehicles are equipped with an astonishing array of approximately 3,000 chips per unit, underlining the intricate relationship between major automakers and the UAW union. As this labor dispute unfolds, production bottlenecks and supply chain disruptions could begin to take their toll on chip suppliers.
Key players in the semiconductor industry, including Texas Instruments and NXP Semiconductors, stand at the forefront of auto chip manufacturing. Meanwhile, TSMC, a leading contract chip manufacturer, plays a pivotal role in this ecosystem. In response to the strike news, shares of these chipmakers dipped significantly.
The repercussions are not confined to these major players alone. Qualcomm and Micron, both with substantial stakes in the connected car sector, may also feel the effects over time. Qualcomm has strategically bolstered its presence in the auto industry, while Micron is widely regarded as the leader in auto memory chips.
The impact on these companies will hinge on various factors, including the strike’s duration and the individual firms’ exposure to automakers. The UAW has chosen a “stand-up” strike strategy, where workers walk out selectively at GM, Ford, and Stellantis plants rather than all at once. This approach aims to prolong the labor action and maximize the use of the union’s considerable $825 million strike fund.
Recent data reveals the extent of these companies’ reliance on the automotive sector. In 2022, NXP derived 52% of its total revenue from automotive chips, while Texas Instruments generated 25% of its revenue from this industry. In contrast, TSMC reported that just 5% of its total revenue came from the automotive segment.
Diversification proves to be the key to resilience in such circumstances. Tyler Theile, COO of Anderson Economic Group, emphasized the importance of suppliers diversifying their customer base. He noted that a 10-day UAW strike could potentially cost the U.S. economy over $5 billion, with global ramifications.
Drawing on the 2019 GM strike, which lasted 42 days, Theile highlighted the impact of supplier concentration. Those primarily serving GM saw their operations grind to a halt, resulting in extensive layoffs. In contrast, suppliers with a broader customer base experienced a less immediate and severe impact.
The wider economy could also experience significant effects, although it would require an extended strike to trigger more widespread consequences. In 2019, the GM strike pushed Michigan into a single-state, single-quarter recession, as per seasonally adjusted data. Expanding such an impact to multiple states or the entire U.S. economy, including indicators like GDP, would be a more extreme scenario but not entirely out of the realm of possibility if a protracted strike were sustained.
However, amid the turmoil, not all tech companies are destined to suffer down the supply chain during the strike. Tesla appears poised to benefit, particularly if the strike endures. As a non-unionized company, Tesla is shielded from similar labor issues. This dynamic underscores the challenges faced by GM and Ford as they contend with the UAW’s demands while competing with Tesla, a leader in electric vehicles.
Analysts like Dan Ives from Wedbush believe that a prolonged strike could significantly impact GM and Ford’s electric vehicle ambitions, potentially pushing production and their EV roadmaps into 2024. Such delays could have substantial consequences for these automakers at a critical juncture in the transition to electric vehicles.
Source: Yahoo Finance