The United Auto Workers (UAW) strike, which commenced on Friday, is poised to have far-reaching implications beyond automakers GM (GM), Ford (F), and Stellantis (STLA). The tech sector, particularly chipmakers, finds itself ensnared in the crossfire.
At the epicenter of concern lies the supply chain. Contemporary vehicles can incorporate up to 3,000 chips each, making a protracted battle between major automakers and the UAW union a potential bottleneck for both vehicle production and chip suppliers.
Leading the charge in auto chip manufacturing are giants like Texas Instruments (TXN) and NXP Semiconductors (NXPI), alongside TSMC (TSM), the premier contract chip manufacturer. On Friday, all three witnessed a dip in their respective stock values.
Qualcomm (QCOM) and Micron (MU) are also poised to feel the ripple effects over time due to their substantial presence in connected car technologies. Qualcomm’s recent investments in its auto division and Micron’s reputation as a frontrunner in automotive memory chips underscore their vulnerability.
The extent of impact of the UAW strike on the tech sector, particularly on these companies, hinges on several factors, including the strike’s duration and each firm’s exposure to automakers. Opting for a strategic “stand up” strike, the UAW stages walkouts selectively across GM, Ford, and Stellantis plants to prolong both the action and the union’s robust $825 million strike fund.
According to Counterpoint Research, in 2022, 52% of NXP’s total revenue was attributed to its automotive chip sector, while Texas Instruments derived 25% of its revenue from this industry, as per company reports. In contrast, TSMC reported that its automotive segment constituted a mere 5% of its total revenue.
Diversification emerges as a linchpin for suppliers’ resilience in such circumstances, emphasized Anderson Economic Group COO Tyler Theile. He asserted that a 10-day UAW strike could potentially yield impacts exceeding $5 billion in the United States alone, with reverberations resonating globally.
Drawing parallels to the 2019 GM strike that spanned 42 days, Theile pointed out that suppliers overwhelmingly reliant on GM witnessed full-scale shutdowns and extensive worker layoffs. Those with a more diversified clientele experienced comparatively slower and less severe repercussions.
While the strike’s broader economic repercussions remain contingent on the severity of the situation, Theile acknowledged that the 2019 strike did lead to a single-state, single-quarter recession in Michigan, as per seasonally adjusted data. He suggested that a sustained lengthy strike could potentially impact multiple states and critical economic indicators, including GDP.
Nevertheless, not all tech companies are poised for negative consequences along the supply chain during this strike. Tesla (TSLA) stands to emerge as a victor, particularly if the strike endures.
“Non-union Tesla does not face similar issues which speaks to the complexity both GM and Ford face going up against the EV leader Tesla while trying to satisfy rising union demands,” remarked Wedbush analyst Dan Ives. He cautioned that a protracted strike could potentially defer production and the EV roadmap, presenting a significant challenge for GM, Ford, and Stellantis.
“We believe a strike lasting longer than 4 weeks would be a body blow to the EV ambitions of GM and Ford in 1H24 and delay many aspects of this initial important EV push,” Ives added.
The UAW strike continues to cast a wide net of repercussions, reaching beyond automakers to impact the tech sector, particularly chip manufacturers. As the standoff persists, the intricate interplay between labor and technology underscores the far-reaching consequences of this labor dispute.
Source: Yahoo Finance
