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Tesla in Germany

Tesla in Germany

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Yale School of Management
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In December of 2021, Tesla, the world’s most valuable car company and leading electronic vehicle (EV) maker, was poised to open a massive new plant in Germany. In the U.S., the company had kept unions and any workers’ role in management out of its facilities, but Germany was the home of labor and management codetermination. To avoid codetermination, Tesla had registered as a European Company (Societas Europaea or SE), a legal maneuver that allowed the company to escape Germany’s strict labor laws.

Most observers believed that IG Metall, Germany’s largest union, would not let Tesla flout German labor laws and traditions and was preparing for battle. The union represented the bulk of the country’s autoworkers as well as metal, textile, and electrical workers. Analysts described IG Metall as the world’s most powerful union in part because German laws made labor an equal partner in industrial relations with management. To allow Tesla to operate outside the German labor framework would be a serious blow to the union’s prestige and power.

Furthermore, IG Metall was grappling with the auto industry’s transition to e-mobility. EVs required a third less workers to assemble and other German auto companies, most notably Volkswagen Group, the second largest automaker in the world, had pledged to build only EVs in the years to come. Tesla’s entry into Germany could complicate IG Metall’s ability to negotiate with these legacy automakers who were anxious to make significant reductions to their work forces to remain competitive in the world market.

Tesla, itself, was facing high stakes. The company’s soaring stock price was based on future revenue and earnings. Market analysts had already priced the company’s production from Germany into their models and any deviation from these projections could send the company’s stock plummeting. Tesla’s favorable access to capital markets could be constrained.

Both company and union had much to lose in this battle and faced dilemmas in the upcoming months. How the confrontation should be resolved and how it would actually play out were very much at issue.

Publication Date: December 16, 2021

Citation: Gwen Kinkead and James Baron, "Tesla in Germany: The Most Powerful Union Confronts the Most Valuable Car Company," Yale Case 21-016, December 16, 2021.