Trump’s energy policy: What it means for oil stocks and EV stocks

Summary 

• Trump’s executive orders may cause short-term volatility for energy and EV stocks, but long-term effects are likely limited.
• US oil production was already surging independently of presidential policies, as driven by global demand shifts from the invasion of Ukraine.
• EV stocks’ growth is primarily fueled by market dynamics, not former president Biden’s subsidies.
• Political announcements are usually symbolic, with supply and demand dictating the real outcomes.

President Trump's pledge to sign nearly 100 executive orders upon taking office has put energy stocks and EV stocks in the spotlight. At his inauguration, he declared a "national energy emergency", rolling back several key regulations across the energy sector.

But here's the reality check: many of these proposed changes are more symbolic than substantive. When Trump announced plans to eliminate EV subsidies, Tesla's stock declined – but traditional energy stocks like ExxonMobil and Chevron also fell.

Why? Because markets had likely already adapted to these scenarios. Most importantly, supply and demand dynamics are what dictate energy markets – not Trump’s signature.

What’s next for US oil stocks?

President Trump proposed to expand oil drilling and reduce environmental regulations. However, US oil production has been soaring since 2018, when it overtook Russia to become the world’s greatest oil producer. Prior to Trump’s election, the US was already producing more crude oil than any other country ever had.

While Trump’s plans could give the industry a boost , it was already thriving under Biden’s presidency. Biden, however, had framed energy policy as a “transition” away from oil, in contrast to Trump’s aggressive support for fossil fuels. Evidently, that did not heed much influence on the energy companies. That’s because these firms adapt to the industry’s new realities, rather than presidential proclamations. 

Investing in US energy stocks

Political rhetoric creates short-term volatility, and successful investing requires going beyond the latest news cycle. Companies that consistently demonstrate strong performance and benefit from diversified revenue streams will be more likely to thrive, regardless of the political climate.

Which companies could benefit?

Despite the limited overall impact of Trump’s announcements, some companies may be well-positioned to weather any ensuing changes to the energy market.

• Traditional US automakers, with both EV and petrol vehicle lines, could benefit from reduced EV mandate pressures. They may end up benefiting from eased supply chain issues, while still offering cars that can cater to growing EV demand. The global EV market shows no signs of slowing, irrespective of Trump’s policies, with sales up significantly recently.
• Firms specialising in power infrastructure, with a substantial focus on renewables, may also be well-positioned. Irrespective of Trump’s focus on fossil fuels, many companies in need of electricity will ultimately choose the cheapest source. Renewables, now often less expensive than traditional power sources, are likely to benefit.

Which companies might face headwinds? 

Similarly, some companies that aren’t as well-diversified could encounter greater challenges now with Trump at the helm.

• EV stocks could see some pressure on sales from Trump’s eliminated subsidies, though the impact is likely subdued. Research from Stanford University found that most Americans who used Biden’s EV purchasing subsidies would have purchased an EV anyway.

• Companies in the wind turbine manufacturing sector may experience share price volatility during periods of policy uncertainty. While domestic US production can offer some protection against potential tariffs, pre-existing market pressures can further contribute to stock price fluctuations.

The market reality

Executive orders can create noise, but they’re rarely the be-all-end-all for a firm’s trajectory. For UK investors, this is an opportunity to look past short-term volatility and stay focused on the companies with proven adaptability. Firms succeeding based on continued innovation and market demand rather than political statements will remain resilient.

Next steps for UK investors 

Rather than reacting to each and every announcement, consider these strategies:

1. ‍Look beyond the headlines: Energy stocks' have so far had a muted response to Trump's drilling promises. That’s because the market has already priced in these political changes. Trump’s election was announced months ago, and with that, many of his inauguration announcements were already baked in.
2. Consider the full picture: Trump’s attitude towards EV subsidies could certainly slow domestic sales, but buyers are expected to keep purchasing EVs, especially as prices fall and technology improves. Just like Trump’s earlier promises of a hefty Canadian tariff have yet to materialise, his threats to stifle EV adoption may carry less weight than they appear. It seems less a matter of if EVs will dominate, but when.‍
3. Balance your exposure: Companies straddling both traditional and renewable energy might offer stability during policy shifts. The US became the global oil superpower under Biden, and that won’t change under Trump. But the vast majority of new jobs from green energy projects have actually been Trump-voting states. Trump’s threats won’t go as far as he claims.

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