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| Elon Musk's Hyperloop idea looks like it belongs in Futurama. |
* Flying nonstop from L.A. to San Francisco is still faster, at around 1 hour and 25 minutes.
* Operating the maintaining the rail would cost between $600 million and $1 billion per year.
* Earthquake safety would be a concern for high-speed tracks over major fault lines.
* 51.2 billion dollars is a lot of money. The eventual total cost of the project may exceed $80 billion by planned completion in 2025.
Thus, when Elon Musk, billionaire founder of SpaceX, Tesla Motors, and PayPal, announced on Monday that he had a plan to connect the cities for a tenth of the cost, quite a few critics were ready to listen.
Enter the Hyperloop.
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| You can read Musk's original announced plans here. |
You've probably already read a bunch about the technical specifications about the Hyperloop, and whether it will work, or whether it will work for the cost. (If not, you can find a description at any. of. these. websites.) For my Back of the Envelope bit, I'm going to go ahead and assume that everything is technologically feasible. If the idea makes business sense, then we can get a few engineers together and double-check Musk's math. More importantly, will people use this?
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| Fun Fact: Robert Goddard, the father of modern rocketry, actually won the first patent of a high-speed tube transportation device on my birthday in 1950. |
Positives: It doesn't require a major change in customer behavior. We all know how to sit down for a train ride or short flight, and the differences between boarding a train or plane and getting on the Hyperloop seems minimal. I expected the ticket cost for the Hyperloop to be comparable to airplane tickets (which run about $200), but Musk's projections suggest a too-good-to-be-true $20 per trip. As comparison, driving a 2013 Toyota Corolla the same distance will cost $45 on gas alone. While 20 bucks is likely a very low-balled estimate, the degree of magnitude difference from airfare makes the Hyperloop very attractive to consumers.
There aren't many cons for such a device, mostly because we don't have much data on what a tube system would entail. The biggest negative is that this would be the first time a tube system for human transportation is implemented, so there is a lot of uncertainty about safety and legal red tape. Also, some motorheads may prefer the independence of driving their own car, but with fuel costs on the rise, this group has dwindled in number significantly.
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| Product Score: 4.5 Stars |
The product sounds way too good to be true, but that's no reason for knocking off any points just yet. A half-star is taken because the Hyperloop is a new product, and its adoption is unproven in other markets (unlike the high-speed rail), but if the Hyperloop can deliver, it far exceeds anything else seen before.
Market
So let's assume that people decide to use the Hyperloop for their commute between LA and SF. How many people could be expected to use it?
It's difficult to find exact figures on how many people travel from L.A. to San Francisco each year, because of the variety of routes and methods of getting between the cities. For the purpose of this analysis, I took the figures of people who fly directly between major L.A. and San Francisco airports (about 6 million people per year), the number of people who drive on the major commuter route, Interstate 5 (averaging 566,000 vehicles per day, though this includes all people using the road), and people taking Amtrack's popular Coast Starlight route up and down the West Coast (1,169 daily, according to Amtrack's website).
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| Driving is still the preferred method of California Coast travel. |
By Air: 6 million fliers per year
By Road: 566,000 vehicles per day * 365 days per year * 10% traffic direct from LA to San Francisco (a very rough estimate) * 1.5 people per vehicle, on average = 30,988,500 commuters per year (~31 million/year)
By Rail: 1,169 train passengers per day * 365 days per year = 426,685 riders per year
This gives a total annual passenger usage of around 37.4 million. At $20 per passenger, this would net $748 million annually, which is a lot, but will be eaten up much by operations and maintenance. If the O&M figures are similar to the high speed rail ones, there might not be much profit. But if it requires cheaper maintenance (which we have no idea at the moment), a large chunk of that money might be used to pay back investors.
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| Market Score: 3.5 Stars |
Team
So here is really the meat of the issue. Elon Musk's name is what makes the Hyperloop worth talking about - if any other billionaire had pitched the idea of pneumatic high-speed people movers, they would've been politely laughed out of the board room. Musk has a track record of making the improbable happen, and even netting unforeseen profits. The Hyperloop idea was apparently sketched out by a joint team of Tesla Motors and SpaceX engineers, and contains signature elements of both companies in the design. The talent, funding, and leadership is all impeccable.
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| A real-life Tony Stark? Almost. |
The one major flaw in the team is Elon Musk's apparent detachment from the idea. He's mentioned that he is remaining focused on Tesla and SpaceX, and made the Hyperloop project open source for someone else to take the reins. While he is likely to offer significant monetary backing, and maybe even build a proof-of-concept prototype, his leadership is the one thing that could make this idea truly worth an investor pitch.
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| Team Score: 2 Stars |
All-in-all, not a home run for Silicon Valley investors by any means, but if Elon Musk comes around and decides to invest more than just his nominal support, he might find high net-worth individuals willing to join him on a personal level.
If the laws of physics and all those other "small details" are truly worked out, I'd be fascinated to see the societal impact taking this idea seriously and investing the time to change travel forever.
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