A fresh wave of auto tariffs is rattling the U.S. auto industry — this time targeting imported parts rather than fully assembled vehicles. While previous levies largely spared American-made cars, the new tariff on auto parts affects nearly every vehicle produced in the United States. Not one of the 10 million cars built in the country last year rolled off the line without some foreign components. With the implementation of the new duties, tens of billions in additional costs are looming over manufacturers, which will potentially be passed down to consumers in the form of higher prices.

Already vulnerable to economic cycles, the auto industry now faces even greater uncertainty. In this environment, investors must be extra cautious. So, how do two of the sector’s biggest names—General Motors (GM Quick QuoteGM - Free Report) and Tesla (TSLA Quick QuoteTSLA - Free Report) —stack up as investment opportunities amid these headwinds? Let’s break down their fundamentals, growth catalysts and looming risks to determine which automaker offers the better bet right now.

The Case for General Motors

General Motors is the country’s top-selling automaker, supported by strong demand for its popular pickups and SUVs. In its recently released first-quarter 2025 results, GM continued its streak of beating earnings expectations, showing resilience despite tough conditions.

However, the company wouldn’t be immune to the tariffs. Citing uncertainty, GM lowered its full-year guidance. It now expects adjusted EBIT between $10 billion and $12.5 billion, down from the earlier range of $13.7 billion to $15.7 billion. Net income forecasts were also trimmed to $8.2 billion–$10.1 billion from the previous $11.2 billion–$12.5 billion. Free cash flow expectations have dropped, too, and GM has paused its share buyback program until the full tariff impact is clearer.

Earnings Estimates for GM

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Despite these near-term headwinds, GM’s long-term story is intact, especially its shift toward electric vehicles. It was the second-largest EV seller in the United States last reported quarter, with Chevrolet emerging as the fastest-growing EV brand. Impressively, GM’s EV lineup became "variable profit positive" by the end of 2024, meaning it now covers its production costs. The company aims to reduce those losses even further this year.

Strategic partnerships with firms like Vianode, LG Chemical and Lithium Americas have strengthened GM’s EV supply chain. Meanwhile, cost-cutting remains a priority. GM met its $2 billion cost reduction target in 2024 and is targeting an additional $1 billion in annual savings by exiting its robotaxi program.

Financially, GM is in good shape. It ended the first quarter with $20.7 billion in cash and is seeing progress in its China restructuring, aiming to return to profitability there this year.

In short, while GM faces near-term challenges, its strong ICE and EV portfolios, improving cost structure, and solid balance sheet support its long-term potential.

The Case for Tesla

Tesla, once seen as the gold standard in the electric vehicle world, is now facing a tough stretch. The company is dealing with falling deliveries across major markets, as competition heats up from legacy automakers and new EV entrants. Its brand image has also taken a hit. CEO Elon Musk’s political involvement has distracted him from the company’s core operations. In the first quarter of 2025, Tesla missed its earnings expectations.

Musk recently said he would reduce his role in the U.S. government’s Department of Government Efficiency (DOGE) and focus more on Tesla. But it’s unclear whether this move can undo the damage already done. The company has been offering steep discounts to keep sales going, but that’s putting pressure on its automotive profit margins. Amid the global tariff uncertainty and ongoing challenges in China, the company plans to revisit its 2025 delivery volume guidance in the next quarterly update.

Earnings Estimates for TSLA

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One bright spot is Tesla’s energy generation and storage segment. This part of the business is growing fast and is more profitable, but it’s not enough to balance out the weakness in its EV division.

Financially, Tesla is strong. As of March 31, 2025, the company had $37 billion in cash, up slightly from the previous quarter. Its long-term debt is low, with a debt-to-capital ratio of just 7. This gives it the flexibility to invest in new opportunities.

Looking ahead, Tesla is betting big on self-driving technology. Musk plans to launch robotaxi services in Austin this June. The company is also working on its humanoid robot, Optimus, and a two-seat autonomous vehicle called the Cybercab, set for volume production in 2026. While these plans are exciting, they are still in early stages and come with execution risks.

For now, Tesla’s core business—selling electric cars—is under pressure. The company’s future depends on its ability to deliver on ambitious new projects while stabilizing its existing operations.

GM Looks Undervalued, TSLA Too Pricey

Tesla is trading at a forward sales multiple of 8.75X, above its median of 7.72X over the last five years. Tesla has a Value Score of F. Meanwhile, General Motors has a Value Score of A, with its forward sales multiple at 0.25X, below its 5-year average of 0.32.

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Conclusion

Both GM and Tesla are facing challenges right now. Tesla, once seen as the top name in EVs, is struggling with falling sales, shrinking profits and distractions from its CEO. While its future plans—like robotaxis and humanoid robots—sound exciting, they’re still just promises at this stage. The core car business is clearly under pressure.

GM, on the other hand, has its own issues, especially with tariffs and lowered guidance. But it’s still holding up better. It continues to sell a lot of trucks and SUVs, and its EV push is gaining ground. In fact, GM’s electric portfolio was near breakeven on variable profit in the last reported quarter. The company is also cutting costs and building strong partnerships to support its future goals.

So, while both General Motors and Tesla are navigating an environment marked by economic uncertainty, rising tariffs and shifting consumer demand, GM may be the better pick for investors seeking a more balanced exposure to the auto sector right now. Tesla still has the bigger brand and bold vision, but GM currently offers more stability and a more grounded execution strategy.

Tesla currently carries a Zacks Rank #5 (Strong Sell), while GM is #3 Ranked (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here