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Management in Practice

How Tesla’s Arrival in Germany Could Set Off a Labor Showdown

Tesla has resisted unionization in the United States. But in Germany, where the electric car maker launched a new Gigafactory this week, unions are powerful and anxious to maintain jobs in an electric future. A new Yale SOM case study explores what’s at stake in the confrontation.

CEO Elon Musk at the opening of Tesla's Gigafactory outside Berlin on March 22, 2022.

CEO Elon Musk at the opening of Tesla's Gigafactory outside Berlin on March 22, 2022.

Photo: Patrick Pleul/dpa-Zentralbild POOL/AFP via Getty Images

On March 22, Tesla opened its new Gigafactory outside Berlin. The plant will give the company a base to sell to European customers and expand its dominance in the electric car market. But it will also mean contending with an unfamiliar obstacle: a powerful labor union, namely the German autoworkers union IG Metall.

In the United States, Tesla spent years blocking unions, using threats and firings to bring workers to heel, and has never given workers a voice in management. But Germany is home to “co-determination”: large companies there are run jointly by labor and management, who serve together on boards that set company strategy and finances. On the shop floor, workers approve operations in work councils, under mandates that give German workers far more rights and power than in the U.S.

“I’ve had to talk American corporate types off the ledge because American corporations don’t like to share decision-making,” says Lowell Turner, emeritus professor of international and comparative labor at Cornell University. “‘This guy from the work council thinks he runs the company! That’s communism!’ ‘No, that’s the German way,’ I tell them.’’

Tesla CEO Elon Musk may have thought he’d found a way around German’s labor norms. In advance of launching its German operation, Tesla bought a shell company and registered not as a German company but a European Company or Societas Europaea (SE). In Germany, these corporate structures, introduced by the EU nearly twenty years ago, are exempt from co-determination.

But even with SE status, Tesla’s refusal to collectively bargain has set off a war with IG Metall, Europe’s largest trade union. If only one worker joins the union, it can grab a toehold in the factory. The union will then assist the work council in monitoring whether Tesla adheres to workers’ rights to co-determine on the shop floor and consult on major company decisions. The council can also delay or block executive decisions in factory policy such as firings, overtime, bonuses, line speeds, work hours, even the layout of the shop floor. If Tesla resists, IG Metall could call slowdowns or strikes—a nightmare scenario for the company. As German companies know, when IG Metall votes a strike, millions of unionists walk off the job.

Tesla should be wary of tangling with IG Metall. Christian Baumler of the Christian Democratic Union, the largest of Germany’s two center-right parties, told Bloomberg, “It is not good for an automobile manufacturer to be in permanent conflict with IG Metall. The union has organizational power, it has money, it has experience. It can endure a long fight.”

And there is good reason for IG Metall to fight. The stakes of Tesla’s arrival are far higher than the wages and conditions of the 12,000 employees slated to work in the Gigafactory. As EVs come to dominate the auto market, the labor market for autoworkers appears to be changing. EVs require a third fewer workers to build because they have fewer moving parts. Germany’s Big Three—Volkswagen, Daimler, and BMW—are already talking layoffs. German studies suggest a massive number of autoworkers could lose their jobs in the global pivot to electric cars.

In the coming years, IG Metall is facing difficult negotiations with German automakers, who have been criticized for years for high labor costs and will push IG Metall hard for labor concessions. In this environment, it is difficult to imagine that IG Metall will allow Tesla to flout German labor norms. While Tesla does not have legacy labor costs since it was “born electric,” letting the company evade any form of co-determination would be giving rival car companies a lever to punish IG Metall in negotiations.

Some in Germany are calling for a more managed settlement to what promises to be a major adjustment in the labor force. Experts like Ferdinand Dudenhöffer, Germany’s “auto pope” and director of the Center for Automotive Research, a Duisburg think tank, argues that German politicians must intervene and determine the role of e-mobility in the country’s future, or risk losing the industry entirely.

Nonetheless, it is hard to imagine a negotiated settlement coming together easily. Musk and Tesla appear to be just as hard-headed as IG Metall. Tesla does have to protect its exorbitant stock valuation, so the possibility of delivery disruptions may force the company to become more tractable. But little in Musk’s past suggests that he will give an inch—especially when it comes to determining how his company operates.