Skip to main content

There's some new interest in Tesla Motors  (TSLA) - Get Tesla Inc Report, which it may not want.

The United Auto Workers union is reportedly very interested in unionizing employees at the California-based maker of battery-powered vehicles.

Dennis Williams, UAW president, told reporters in Detroit last week that the union has "contacts there. We know that plant very well. It's the old NUMMI [New United Motor Manufacturing] plant. We're very interested in Tesla." Tesla has declined to comment.

From an investor's perspective, UAW representation, bringing higher wages, stricter work rules and possible labor stoppages, could add uncertainty to Tesla's already aggressive production forecasts through 2018.

Tesla has told suppliers of plans to build 500,000 Model 3 vehicles over the next two and a half years, a goal many analysts, including TheStreet's Jim Cramer, consider unrealistic. Tesla's production plan forms the basis for a $1.46 billion sale of Tesla shares announced last week, at $215 a share. Shares are currently trading around $217.

Musk may not oppose UAW representation. Earlier this month, the San Jose Mercury-News reported a Slovenian-born worker on a construction project at Tesla's plant was being paid $5 an hour when he was badly injured. Musk said he's looking into the allegations because the construction contract specified wages of $55 an hour.

TheStreet Recommends

Typically, the UAW can seize on instances of low pay and poor worker safety to convince employees they should vote for union recognition. Alternatively, the UAW could seek recognition from the employer directly, assuming Tesla was amenable.

The UAW, which has lost two-thirds of its membership since its peak in the 1970s, has been frustrated time and again in organizing foreign automakers such as Nissan Motor (NSANY) , which builds vehicles and engines in various locations in Tennessee, and, most recently, assembly workers at Volkswagen  (VLKAY) in Chattanooga. 

Tesla's backyard could be a different story. The automaker's factory in Fremont, Calif., lies in the heart of the San Francisco bay area. The structure once belonged to General Motors  (GM) - Get General Motors Company (GM) Report and later to a joint venture of Toyota (TM) - Get Toyota Motor Corp. Sponsored ADR Report and GM, New United Motor Manufacturing, that ran from 1984 to 2010. It was a UAW plant, located in region that is friendly to unions.

Assuming the UAW and Tesla can come to terms without rancor, the union would be able to claim an important organizing victory that may give it leverage elsewhere in the U.S. An eventual organizing victory also holds risk for the UAW, since Tesla is seen by many as a niche automaker that will find itself on increasingly thin ice as it attempts to battle global manufacturers such as GM, whose battery-powered Chevrolet Bolt is expected to reach the market later this year ahead of Tesla's Model 3.

Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.