Tesla Motors (TSLA) CEO Elon Musk has already built spaceships and luxury electric cars, where he is finding much success. Now, the forward thinking transportation maverick has unveiled a project that again sounds right out of a science fiction movie. But if his past successes are any indication, it could maybe work – and in a testament to his business savvy, actually be profitable.
The proposal is called the “Hyperloop,” and would consist of a giant pneumatic tube full of gull wing-doored passenger cars. The tube would use intense air pressure to shoot those passenger cars across vast distances, like canisters at a bank, albeit at speeds approaching 700 MPH.
Going that fast, the Hyperloop could theoretically cut travel time from Los Angeles to San Francisco to 35 minutes, at a reported cost of $20 for a one-way ticket. Which is the exact route Musk proposes to test first – and which is an obvious dig at the beleaguered high-speed rail system the California government has been struggling to get off the ground for years.
The high-speed rail system has been dogged by not-in-my-backyard opposition and a high price tag, with estimates for Phase One of the project topping out at $68 billion. Musk’s proposal would certainly be expensive, but with a much smaller pricetag of $6 billion, a more palatable option.
Musk is able to shave a lot of the money off his proposed cost because of the expense of real estate. California has some of the most expensive land rights costs in the country, and building a high-speed rail will require purchasing a lot of land. Musk’s Hyperloop would merely follow the Interstate 5 corridor, which has already obviously been cleared for a transportation route.
However, a couple major flaws pop up in Musk’s rosy proposal. Obviously, the entire concept itself is completely untested, scientifically. Sam Jaffe in the Navigant Research blog reported that he read Musk's 57-page proposal, and notices that as the Hyperloop is currently designed, it will simply get too hot to function. He wrote: “The pod will be compressing air and expelling it downwards and backwards. All that air compression creates an enormous amount of heat, which can damage the pod and its machinery."
Another issue: Musk waves away the feasibility of the high-speed rail making money with an interesting assumption. In his proposal Musk wrote “The (high-speed) train in question would be both slower, more expensive to operate (if unsubsidized) and less safe by two orders of magnitude than flying, so why would anyone use it?”
Musk is right to assume high-speed rail would be slower than a hypothetical Hyperloop, and twice as dangerous as flying – which still makes it much, much safer than driving. But assuming high-speed rail would be “unsubsidized” ignores the fact that practically all transportation enhancers are subsidized: from airports to highways, and even money pits like Amtrak. Easing transportation improves the economy, and the government has a vested interest in subsidizing anything that helps people get where they’re going, quicker.
These issues obviously need to be addressed to make Hyperloop feasible. With every new project proposal, Musk has had his doubters. The project itself is built on a series of conjectures. As with any project that has never been attempted before, there is zero precedent. As proposed, the Hyperloop versus the high-speed rail was conjecture versus reality.
But on Aug. 13, Musk announced he will begin building the prototype for the Hyperloop out of his own pocket. And then the public will get to see if Musk can upend the doubters again.
Tesla’s stock is up .90 percent to hit $148.71 a share.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer