On shaky ground

Volatility is still reigning high in the markets, with Wall Street's best fear gauge, known as the VIX, hitting levels yesterday that haven't been seen in two months. The index traded as high as 23.73 intraday, as concerns about inflation spread to other areas of the market, with the Dow losing 473 points, to end the day down 1.4%. The Nasdaq meanwhile rebounded from earlier losses of 2%, but the buy-on-dip crowd couldn't push the index into the green before the close.

Things aren't looking better this morning. Stock index futures are all off by about 0.4% ahead of an inflation report that could shake markets once again. Fears about a sustained jump in inflation have particularly weighed on growth stocks, including those in the tech sector that were popular during the pandemic. Cyclical shares have meanwhile climbed on expectations of a full economic reopening, but those gains could also be challenged in the new price environment.

Quote: "Everyone who is involved in markets knows that the inflation data is running hot," said Jonathan Golub, Credit Suisse's chief U.S. equity strategist. "The debate right now: Is this temporary or is this something stickier? And we won't know for a long time, but that's really where the conversation is going."

Go deeper: If the latest price rise is mostly commodity-driven, the future will largely depend on how long those inputs keep rising. For example, the demand that ensued following the 2009 economic rebound pushed up global inflation for two years until commodity markets topped out. This time around, raw materials aren't the only factor fueling inflation, given the shortages of everything from electronics to cars, as well as logistical logjams. That's on top of pent-up demand from the pandemic, as consumers take out their wallets and the government entertains the idea of trillions more in federal spending.

Restart deadline

Operators of the Colonial Pipeline (NYSE:SHLX) will know by late Wednesday whether it's safe to restart flows of fuel following a crippling cyberattack last week that shuttered the 5,500-mile conduit. Even when the pipeline is restored to full service, it'll take about two weeks for gasoline stored in Houston to reach East Coast filling stations, while heavier diesel and jet fuel will take even longer (about 19 days).

The national average of retail gasoline prices has already risen above the politically sensitive level of $3 a gallon for the first time in six years, adding to broader inflationary pressures. More than 1,000 gas stations in the Southeast have reportedly run out of fuel, while premium for wholesale gasoline in the New York area reached its widest in three months. Crude processors are also being forced to reduce run rates, while refiners are booking ships to store growing fuel stockpiles.

Steps taken: Emergency shipments of gasoline and diesel from Texas are on the way to southeastern cities via trucks as the White House relaxed some environmental rules to help bring in more fuel. The Department of Transportation is meanwhile considering a temporary waiver of the Jones Act that could permit foreign tankers to transport gasoline and diesel to East Coast ports. With Colonial only managing to restart a small segment of the pipeline as a stopgap measure, the EPA has additionally allowed the sale of gasoline that doesn't satisfy requirements meant to help combat smog in certain areas.

Outlook: Corporations are trying to figure out what to do given the situation. Southwest Airlines (NYSE:LUV) has begun flying supplies to Nashville, Tennessee, and other cities, while United Airlines (NASDAQ:UAL) loaded extra fuel on flights to preserve local supplies in places like Baltimore and South Carolina. Shares of retailers like Home Depot (HD), Lowe's (LOW), Walmart (WMT) and Target (TGT) also traded lower yesterday as investors showed some anxiety over the future of gas prices and stimulus drying up.

To battery swap or not

As it looks to deepen its presence in the electric car market, Renault (OTC:RNSDF) is considering introducing battery-swapping capabilities, which would significantly cut waiting times at charging stations. "It's not decided, but I see it as an interesting opportunity," CEO Luca de Meo told the FT. "We need to find a pragmatic solution, but from a business point of view, there's a point separating the battery from the car." The French automaker is part of the Renault-Nissan-Mitsubishi Alliance, which is one of the biggest car manufacturers in the world and a leader in EVs (think the pioneering Leaf and best-selling Zoe).

Backdrop: Interestingly enough, Renault was once a trailblazer in battery swapping technology for electric vehicles. Starting in 2010, the carmaker became the primary partner for Better Place, an Israeli startup that hoped to revolutionize the e-mobility industry. The company initially set up shop in Israel, Denmark and Hawaii, but was plagued by financial difficulties and mismanagement, and eventually went bankrupt in 2013.

Tesla (NASDAQ:TSLA) also began conducting its own battery swapping trials in 2013, but it dropped the project a few years later as consumers increasingly expressed interest in its Supercharger network. While the process seems simple, making a business out of swapping is a bit complicated. Batteries are the single most expensive component in any EV, but they're still in a rapid stage of development and manufacturers have been reluctant to standardize anything. In fact, at Tesla's Battery Day event last September, the EV maker said it plans to integrate batteries into structural elements of future cars, comparing them to the fuel tanks located within the wings of an airplane.

Enter NIO: The Chinese EV maker just recorded a milestone of 2M battery swaps to date and plans to double its Chinese network to more than 500 stations in 2021. Each NIO (NYSE:NIO) battery swap takes only a few minutes (and comes with a full charge), compared to the 35 minutes it takes a Supercharger to load a Tesla battery from 10% to 80% (it's even slower at home). Besides quicker turnaround times, battery swapping technology also allows EV makers to decouple the cost of batteries from their vehicles, meaning drivers aren't worried about depreciating battery capacity or the value of their cars.

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