ZACKSยท2025-05-07 16:25Industry Overview - The auto industry is facing significant challenges due to a 25% tariff on imported vehicles and another 25% duty on non-compliant auto parts, which could increase costs for automakers by tens of billions of dollars [1] - Demand for vehicles is expected to soften, and supply chain disruptions are likely to worsen, leading several automakers to cut back or pause their guidance [1] Case for Ford - Ford reported first-quarter 2025 earnings of $1 billion in EBIT, exceeding expectations, driven by cost-cutting and strong pricing in North America [3] - U.S. pickup sales reached their highest first-quarter levels in over 20 years, and the Model e division saw a 15% year-over-year increase in retail sales [4] - Ford is on track for $1 billion in net cost reductions this year, despite anticipating a $2.5 billion impact from new tariffs [5] - The company has paused full-year guidance due to tariff uncertainty but plans to provide updates in the second-quarter earnings call [6] - Ford's financial position is strong, with over $27 billion in cash and $45 billion in total liquidity, and it aims to return 40-50% of free cash flow to shareholders [7] Earnings Estimates for Ford - Zacks Consensus Estimate for Ford's current year EPS is $1.22, with a year-over-year growth estimate of -33.70% [9] Case for Tesla - Tesla is experiencing a decline in deliveries amid increased competition and missed earnings expectations in the first quarter of 2025 [10] - The company is implementing price cuts to stimulate sales, which is negatively impacting automotive margins [10] - Tesla's energy generation and storage segment is growing but is not yet large enough to offset pressures on vehicle sales [11] - The company held $37 billion in cash as of March 31, 2025, with a low debt-to-capital ratio of 7% [11] - Tesla is focusing on next-generation technologies, including robotaxi services and autonomous vehicles, but these projects face significant execution risks [12] Earnings Estimates for Tesla - Tesla's near-term outlook is uncertain, hinging on stabilizing its EV operations and progress on long-term innovations [13] Valuation Comparison - Tesla is trading at a forward sales multiple of 8.38X, significantly above the industry's 2.3 and its own median of 7.73X, while Ford has a forward sales multiple of 0.26X, below its 5-year average of 0.31 [16] Conclusion - Both Ford and Tesla are facing industry headwinds, but Ford appears to be in a better position due to its focus on cost reductions and commercial fleet strength [19] - Tesla is under pressure in its core EV business while pursuing ambitious long-term projects, making its stock vulnerable in the near term [20]