A union is the least of Tesla's problems -- but it could have far-reaching implications for Silicon Valley

Tesla is facing a potential unionization effort by workers at its Fremont, CA factory.

This shouldn’t surprise anyone, least of all Tesla itself. The factory was a union shop when it was jointly operated by Toyota and General Motors and known as NUMMI.

Tesla acquired the plant and didn’t operate it as a union facility, and because it was so far off the map of the United Automobile Workers (UAW), whose workforce is concentrated in the Midwest, it didn’t make much difference.

If the UAW were going to unionize a plant, it wanted to focus on the US South, where “right to work” laws make unionizing more difficult and where numerous foreign car companies have established factories over the past 40 years. (The most recent example was a failed effort to unionize a Volkswagen plant in Tennessee.)

The workforce at Tesla is paid on par with what are known as Tier 2 wages for the UAW, starting at about $17 an hour. Tier 1 UAW workers start at $28. For what it’s worth, the UAW accepted this two-tiered structure in 2007 when the US automakers were being flattened by the lead-up to financial crisis, but it didn’t like it and has fought to modify or roll it back ever since.

The new contracts that were negotiated with Fiat Chrysler Automobiles, Ford, and GM in 2015 began the process of eliminating the detested two tiers, which for the union violated the principle of “equal pay for equal work” for members.

But the lower-wage scale prevails in the non-union part of the business, which includes Tesla.

Because California isn’t a right-to-work state, Tesla had to expect the UAW to arrive at some point, and rumblings began last year that a union push was underway. Those rumours have been confirmed by some recent activity, which has already been commented on by CEO Elon Musk.

Musk says Tesla is ‘union neutral’

Tesla FactoryBenjamin Zhang/Business InsiderThe Tesla factory today.

Caught up in this are some claims that Tesla’s workers are dealing with a lot of mandatory overtime and a hazardous workplace. There’s no question that Tesla has run hard at times during the past two years, as the company works to ramp up production of its Model S sedan, Model X SUV, and prepares to build the Model 3 mass-market vehicle. Auto plants can also be physically demanding places to work.

Musk has defined Tesla a “union neutral,” which can simply be translated as “the workforce can attempt to unionize if it wants.” Tesla’s workers can join with the UAW to file for a union vote with the National Labour Relations Board, and if the vote is in favour of collective bargaining, then the UAW, Tesla’s workers, and Tesla management would negotiate a contract that would likely resemble what the union achieved with the Detroit Big Three (a tricky issue might involve Tesla stock options, but the UAW typically negotiated profit-sharing with the traditional industry.)

California has a huge and diverse economy, and a lot of it is unionized (from education to Hollywood). This was one of the business risks Tesla took when it decided to buy the Fremont plant. The company could have set up operations in Georgia or South Carolina.

But a functioning car factory right next door to Silicon Valley was just too good to pass up (the price was also right).

And therein lies the larger issue that a unionization effort at Tesla — which, by the way, isn’t guaranteed to succeed — brings up.

The Silicon Valley factor

There’s a better-than-average chance that Tesla could be unionized. Such an outcome wouldn’t be shocking at all, because Tesla is an American car company and all the other US manufacturers are union, plus California is a union-friendly state. The NLRB is a slight wildcard, as the Trump administration will get to appoint some of its members, and typically the Republican-administration appointees aren’t as labour-oriented as Democratic appointees.

If Tesla unionizes, it would be the first new car company to join the UAW in decades, but more importantly, it will be the first Silicon Valley company to vote for collective bargaining.

Apple hqAppleApple’s planned campus in Silicon Valley. Unions see the tech industry as potentially a great opportunity.

This highlights the schizophrenic nature of Tesla’s existence — and explains why Musk calls the company “union neutral.” Tesla is a high-tech Silicon Valley startup and, increasingly, a major automaker, at the same time. Musk knows that car companies employ unionized workers and wouldn’t deny that fact of life.

But he also wants to preserve the rapid-growth, tech-firm mentality that drives Tesla to develop stuff like Autopilot semi-self-driving systems and frequent over-the-air software updates for its cars.

The rest of Silicon Valley is completely unreceptive to the idea of unionization even though from the perspective of some engineers and programmers collective bargaining might make sense. But the majority of knowledge workers tend to associate unions with blue-collar labour and old-school industries.

That hasn’t stopped organised labour from seeing Silicon Valley as a plum opportunity. There are thousands of workers putting in long hours and making good money, but they are also aiming for big payouts that are statistically improbable. In many ways, Silicon Valley resembles, in the eyes of organised labour, Hollywood — but a Hollywood updated for the 21st century. And Hollywood is unionized from top to bottom, from the below-the-line people who hang the lights to the highest-paid actors and actresses.

Consequently, a Tesla union would be a very big deal — for unions and Silicon Valley, not so much for Tesla.

GettyImages hollywood signDavid Livingston/Getty ImagesThe entertainment business is heavily unionized.

A shock wave through the tech industry

If Tesla determined that a union was likely at Fremont, the company probably wouldn’t waste a lot of time fighting against it. With the Model 3 entering pre-production this month, it’s late 2017 launch is almost a near-certainty. But the carmaker has a lot riding on steady, uninterrupted execution for the rest of the year. Many things could go wrong, so having to deal with a UAW contract is really the least of Tesla’s worries.

Musk also probably doesn’t want Tesla’s recent stock rally, which has added $10 billion to the company’s market cap (now at $40 billion), to be undermined by investors questions about the cost of the union battle.

The broader impact on Silicon Valley is another story. It’s safe to say that a significant portion of the tech industry would be confused and horrified if Tesla unionized. They might not be able to expect much opposition from the Trump administration, which rode into office thanks to traditional UAW bastions such as Ohio and Michigan voting Republican. Trump needs hiring by car companies in the Midwest, and that means more, not fewer, union jobs.

So as with all things Tesla, it will be well worth watching to see if this unionization campaign materialises.

This is an opinion column. The thoughts expressed are those of the author.

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