SECTION 19 -TEAM PROJECT 1 - GROUP A

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Economics

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Feb 20, 2024

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1 TEAM PROJECT 1 – MICROECONOMICS Microeconomics Issue discussed in this case study " For Tesla and Musk, Auto Strike Carries Benefits and Risks." MBAF 504 – Business Economics Section 19 – Group A Aarushi Jain – 2306363 Gurjeet Kaur – 2310942 Gurkirat Singh – 2303037 Nandhini Natarajan – 2309381 Saurabhdeep Singh Deopuri - 2313707 Vikraman - 2220948

2 TABLE OF CONTENTS 1.Introduction .................................................................................................................................. 4 2. Economic concepts ..................................................................................................................... 4 2.1Related to the automotive industry, labor union and Tesla's position in the market .............................................................. … ............... ..4 2.2 Related to specialization, exchange, and markets ........................................................ 6 2.3 Related to boom and recessions ................................................................................... 7 2.4 Related to opportunity cost and productivity advantage … ........................................ 8 3. Shift in supply and demand ....................................................................................................... 9 3.1 Change in supply ......................................................................................................... 9 3.2 Change in demand ....................................................................................................... 9 4. Demand elasticity ...................................................................................................................... 10 4.1 Price Elasticity of Demand (P.E.D.) … ............................................. .......................... 10 4.2 Demand Elasticity by Income (YED) … ..................................................................... 10 4.3 Cross-Price Elasticity of Demand (X.E.D.) … ........................................................ ...11 4.4 Labour market elasticity ............................................................................................ 11 5. Equity and efficiency ................................................................................................................ 11

3 6. Highlights of the article ........................................................................................................... 12 7.Conclusion ................................................................................................................................. 13 References .................................................................................................................................... 14

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4 1. INTRODUCTION The United Automobile Workers (U.A.W.) strike against established automakers, including Ford, General Motors, and Stellantis, and its effects on Tesla, the Elon Musk-led electric vehicle manufacturer, are discussed in the article. Due to its lack of union restrictions, Tesla has been able to reduce car prices and boost profitability, so many see the strike as a chance to further establish the company's leadership in software and battery technology. But the U.A.W. is committed to pushing Tesla employees to unionize, which puts the business and C.E.O. Elon Musk at risk. Musk has previously opposed unions. The difficulties of labor organizing, Tesla's financial results, the evolution of organized labor, and the possible repercussions are all highlighted in the article. 2.ECONOMIC CONCEPTS 2.1 RELATED TO THE AUTOMOTIVE INDUSTRY, LABOR UNIONS, AND TESLA'S POSITION IN THE MARKET The article discusses labor unions and organized labor, with a focus on the United Automobile Workers (U.A.W.) and their role in the revival of organized labor. The economics of the automobile industry may be impacted by this revival, which is indicative of a larger trend of rising labor engagement. Labor Strikes and Negotiations : This section discusses the U.A.W.'s labor strikes against conventional automakers, including Ford, General Motors, and Stellates. The established automakers may see a decrease in profitability due to these strikes and an increase in personnel costs.

5 Tesla's Competitive Advantage : As a manufacturer of electric vehicles, Tesla has significantly increased its profitability and market share. Because Tesla does not have a labor union, it can capitalize on work stoppages by its rivals to further establish its superiority in battery software and technology. Tesla may be able to cut car prices thanks to this competitive advantage, which would put pressure on established automakers. Difficulties of Labor Organizing : Labor organizing is characterized as a difficult and drawn-out procedure that calls for a sizable portion of employees to sign union cards and take part in a vote overseen by the National Labor Relations Board. Businesses frequently oppose unionization attempts by using legal and consulting resources to fight back against such campaigns. Economic Performance of Tesla : The company's impressive financial results are emphasized. Due to its notable profitability and profit margins, the company is a desirable target for labor unions pushing for increased worker pay and benefits. Political and Regulatory Factors: Given that President Biden is a prominent supporter of unions, the article recognizes the impact of political factors. The political environment may impact labor negotiations and activism. Pay and Benefits: The article compares traditional automakers' and Tesla's pay and benefits, highlighting the difficulties in determining pay because of variables like stock options and the risks they entail. Elon Musk and Tesla: The article emphasizes the resistance to labor organizing efforts, especially from Elon Musk, the C.E.O. of Tesla. Legal disputes are mentioned, including claims of unlawful firings and threats.

6 Possible Industry Effects : Traditional automakers, who were at first hesitant to react to the electric vehicle market, are perceived as being at risk from the strikes. According to the article, Tesla's leading position in the industry makes it possible that it will benefit from these strikes. Overall, here, the role of stock options is discussed, including the potential value for Tesla employees as well as the risks involved because the value of the options varies with the price of Tesla's stock. The work environment at Tesla is described as hard, with long hours and strict deadlines. There are also mentions of alleged workplace discrimination, which highlights more nuances in the labor- management dynamic. 2.2 RELATED TO OPPORTUNITY COST, PRODUCTIVITY ADVANTAGE AND EFFICIENCY Opportunity cost is the price of the next best option that must be foregone to decide. The United Automobile Workers (U.A.W.) and Tesla's decisions, as well as labor strikes, are used in this article to discuss opportunity cost. U.A.W.: The U.A.W. is participating in strikes against Ford, General Motors, and Stellantis, among other traditional automakers. Their opportunity cost is the chance to use collective bargaining to win benefits and pay raises for their members while also highlighting the power of unions in a labor movement that is on the rise. Tesla : In this instance, the company's opportunity cost is avoiding dealing with labor disputes and work stoppages. Alternatively, they could concentrate on improving software and battery technology and bringing down car prices, which could improve their competitiveness in the electric vehicle market.

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7 Productivity Advantages : A company's capacity to generate greater output using the same or fewer inputs is referred to as a productivity advantage. According to the article, Tesla may be more productive than traditional automakers because it can concentrate on innovation and there are not any labor strikes. This might enable Tesla to continue to lead in software development and battery technology, both of which are essential for electric car technology. Efficiency: In this sense, efficiency is the degree to which a business uses its labor force and other resources to accomplish its objectives. Efficiency indicators include Tesla's higher profit margin and stronger financial performance. Tesla is perceived as having a competitive advantage that can increase consumer appeal due to its capacity to lower car prices while maintaining profitability. In the face of labor strikes and union organizing efforts, Tesla's distinct position as an industry disruptor offers both potential benefits and obstacles. 2.3 RELATED TO SPECIALIZATION, EXCHANGE, AND MARKETS, PARTICULARLY IN THE CONTEXT OF THE AUTOMOTIVE INDUSTRY AND LABOR UNIONS: Specialization : Tesla, which holds a 60% market share in the U.S. (United States), is emphasized as a business that has focused on producing electric vehicles (E.V.s). Thanks to this specialization, Tesla has gained a significant advantage in the development of E.V. software and battery technology. Exchange : According to the article, Tesla can benefit from work slowdowns and strikes at conventional automakers (like Ford, GM, and Stellantis) to strengthen its position in the market. It is mentioned that Tesla's profitability may have contributed to its ability to reduce car prices, which may have drawn in more clients and expanded its market share.

8 The article examines the competitive environment in the electric vehicle (E.V.) market and how Tesla's robust financial performance enables it to lower car prices, making it difficult for conventional automakers to compete. This demonstrates how the dynamics of the market, particularly price competition, impact the performance of businesses within the sector. Government Policies and Labor : According to the article, President Biden's support of unions has created a positive environment for organized labor now. Workers' bargaining power and the dynamics of the labor market can be influenced by political support and government policies. C.E.O.'s Perspective : Elon Musk's views on labor and pay are examined, with a focus on how C.E.O. attitudes and behaviors affect labor market dynamics and wage negotiations. 2.4 RELATED TO BOOM AND RECESSIONS: Full Employment: Here all the resources within an economy have been tapped into and when an economy has reached a point It is stated in the context of the article that the U.A.W. strike on traditional automakers could have an impact on employment and wage rates in the auto sector. Booms: The article describes Tesla as a company which has experienced tremendous growth and profitability such that it has become dominant in the electric cars market.; This can be regarded as one kind of company "being on the boom" in general. Recessions: Despite the absence of a reference to an imminent recession, there is an indication that the U.A.W. strike against conventional automakers might hamper their capability of investing in E.V. and battery shops, which would eventually lead to a reduction in economic actions.

9 Economic Growth: The article suggests that Tesla has grown economically because of its profitability and leading status within the automobile industry; this has subsequently led to reductions in car prices and further investment research in batteries and software engineering. 3. SHIFTS IN SUPPLY AND DEMAND The United Automobile Workers (U.A.W.) strike against Ford, General Motors, and Stellantis, among other traditional automakers, could have a significant effect on Tesla, an electric vehicle manufacturer. This is discussed in the article. It implies that even though Tesla lacks union representation and is therefore not directly impacted by the strike, it may nevertheless encounter opportunities and difficulties in this regard. 3.1 Change in Supply: The traditional automakers' walkout may cause a change in the availability of conventional gasoline-powered automobiles. The strike caused production to be halted or reduced, decreasing the supply of these vehicles. Although it is implied by the strike, this is not stated in the article directly. 3.2 Change in Demand : In contrast, there is a chance that the strike will cause a change in demand. There might be a rise in the market for Tesla's electric vehicles. Because traditional vehicles are not readily available from the striking automakers, consumers may choose Tesla as an alternative. According to the article, Tesla may be able to increase its technological and software lead by utilizing work stoppages, which could increase the appeal of its electric vehicles. It is crucial to remember that the article does not include a specific diagram that shows these changes in supply and demand. More quantitative information on changes in supply and demand quantities and prices for both would be necessary to produce such a diagram.

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10 The strike interferes with the supply of conventional cars, which could present a chance for Tesla to take a share of the higher demand that results from the strike's effects on conventional automakers. This scenario demonstrates how market forces and labor actions can affect an industry's supply and demand balance. 4. DEMAND ELASTICITY The term "demand elasticity," as used in this article, describes how sensitive consumer demand is to shifts in specific variables, like price or wages. The amount that a product's quantity demanded fluctuates in response to changes in these factors is known as its elasticity. Demand elasticity in the context of this article can be understood as follows: 4.1 Price Elasticity of Demand (P.E.D.): Tesla, a successful manufacturer of electric vehicles, is mentioned in the article as having the ability to reduce car prices. If the demand for Tesla vehicles is price elastic, then a drop in the vehicle's price will result in a correspondingly greater rise in the quantity demanded. Stated differently, customers react quickly to price adjustments, and by lowering prices, Tesla may be able to sell more vehicles. 4.2 Demand Elasticity by Income (YED): The pay of autoworkers and the possibility of wage increases are covered in the article. If the demand for Tesla vehicles is income elastic, then a rise in the income of prospective purchasers (autoworkers, for example) will result in a correspondingly greater increase in the quantity demanded. In this instance, the potential for autoworkers to make more money may result in a rise in interest in Tesla automobiles. 4.3 Cross-Price Elasticity of Demand (X.E.D.): Tesla's exploitation of traditional automakers' work stoppages is discussed in the article. If the demand for Tesla vehicles is cross-price elastic, price fluctuations for vehicles from conventional automakers (such as Ford and General Motors) will have a substantial effect on the desire for Tesla vehicles. If Tesla maintains its lower prices,

11 it may be able to draw in more customers than traditional automakers who may raise their prices because of rising labor costs. 4.4 Labor Market Elasticity : The United Automobile Workers (U.A.W.) may try to unionize Tesla employees, according to the article. The outcome of such a unionization attempt may impact working conditions, labor costs, and even the demand for Tesla automobiles. The labor supply of autoworkers is highly impacted by changes in pay and working conditions, which could have an impact on Tesla's cost structure and product prices if the labor market for these workers is elastic. To summarize, this article's discussion of demand elasticity pertains to the degree to which shifts in price, income, and labor market conditions affect the demand for Tesla electric vehicles. For Tesla to respond to shifting market conditions and make strategic decisions, it is imperative that it comprehends these elasticities. 5. EQUITY AND EFFICIENCY: Equity: Fairness when dealing with workers is referred to as equity in this case. Auto industry workers are requesting increased wages and improved conditions through the U.A.W. To this end, the paper proposes that the U.A.W. strike will increase wages and improve the workplace environment, which is viewed as fair wealth distribution. These companies' workers are demanding a fair profit-sharing arrangement in unison with union. Efficiency : Efficiency is the measurement of resource efficiency within an industry. This suggests that while non-unionized Tesco has an efficiency advantage over conventional automakers, it could be at risk with U.A.W. being aggressive. The operational efficiency with which Tesla lowers car prices and maintains profitability, despite labor disputes elsewhere, points in this direction. Such a level of efficiency enables Tesla to reinvest in advanced technologies like batteries and software that are key players in the global E.V. market.

12 6. HIGHLIGHTS OF THE ARTICLE: Tesla's Advantage : Tesla can take advantage of the strikes it will have levied against mainstream automobile producers. Tesla could utilize those strikes as it is not constrained by the union and thus focus on better batteries and software, becoming more beneficial and competitive. U.A.W.'s Intentions : The United Automobile workers union wants their members to win against Tesla's factory workers to organize them. This is a new effort, separate from a campaign in a Buffalo plant where Tesla manufactures electric vehicle chargers. Union Organizing Challenges : It is an extremely arduous process of labor organizing. For activists to trigger the NLRB supervised vote there should be at least 30% workers within the workplace. Cases of companies discouraging or scaring their employees not to join the union. Tesla's Financial Strength: Despite being in the spotlight, Tesla has the upper hand when it comes to finances reporting good margins relative to legacy competitors such as Ford, GM, among others. Tesla can therefore reduce the prices of its cars while maintaining an upper hand in the electric car market. Labor Environment: The article highlights the favorable environment for labor union in modern society where President Biden is in support of unions and other high-profile strike in different industries such as Hollywood and United Parcel Service employee. Elon Musk's Response: Elon Musk recognized the union threat and indicated that Tesla compensates more in comparison with U.A.W. Traditional automakers claimed that they have more competent staff at higher pay rates. Opposition to Unionization : Elon Musk would certainly oppose any union drive on Tesla. Musk had been previously discovered making unlawful statements to the staff relating to stocks should the employees opt to form a union. Potential Implications : To such traditional carmakers which have failed to treat seriously Tesla,

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13 the strike comes with risks as it may cause them to lose more time to come back on the electric vehicles' industry. In fact, some people even suggest that Tesla is the one who might come out victorious. 7. CONCLUSION Lastly, the United Automobile Workers (U.A.W) strikes may present challenges and difficulties to Tesla's C.E.O., Elon Musk. Tesla has flourished even though it has never engaged with unions; it could utilize this to strengthen electric car technology as well as software power. However, Tesla has come as prepared for yet another union drive by the U.A.W., which would constitute danger for Tesla. However, the result of the labor problem might not be in Tesla's favor as unions strive for improved working conditions for its employees during a general rise of labor strikes in U.S.A. The circumstance remains vague, with Tesla and U.A.W. having watched its development.

14 REFERENCES For Tesla and Musk, Auto Strike Carries Benefits and Risks . (2023, September 21). New York Times. Retrieved September 21, 2023, from https://www.nytimes.com/2023/09/21/business/tesla-musk-auto-union.html Nonunion Workers Are Playing a Big Role in the Autoworkers' Strike (2023, October 23). New York Times. Retrieved October 23, 2023, from https://www.nytimes.com/2023/10/23/business/union-nonunion-autoworkers-uaw.html U.A.W.'s Expanding Strikes Could Signal an Endgame or A Long Struggle . (2023, October 24). New York Times. Retrieved October 24, 2023, from https://www.nytimes.com/2023/10/24/business/economy/uaw-general-motors-strike.html

SECTION 19 -TEAM PROJECT 1 - GROUP A

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