Aug 23 2017
Since 2013, Tesla CEO Elon Musk has talked about building Hyperloop, a high-speed, intercity transportation system. While conversation surrounding the system was relatively minimal in the years that followed, Musk recently announced that he has received verbal governmental approval to start building an underground Hyperloop connecting New York City, Philadelphia, Baltimore and Washington, DC. Unlike existing trains, the Hyperloop would use a partial-vacuum tube system elevated on pylons to enable train capsules to hover on low-friction air bearings propelled by linear induction motors. According to Musk, this system would allow the Hyperloop to travel at speeds up to 760 miles per hour.
Although Hyperloop’s “verbal approval” has yet to be cemented into policy, Hyperloop construction would have varied effects on several US industries; it could change the way passengers travel, bolster freight infrastructure and introduce a new source of revenue for construction and engineering companies.
Where are we now?
While Hyperloop is a trademark registered to SpaceX, Musk originally proposed that other operators develop the system independently, which stimulated funding and activity for a variety of projects. Although this trademark may present issues for other players, several independent companies are currently developing some form of a Hyperloop system, including primary players Hyperloop One, Hyperloop Transportation Technologies and Arrivo. Hyperloop projects could disrupt activity in several industries, as well as present opportunities for operators along its supply chain.
Which industries could be affected?
Hyperloop technology does not fit neatly into the classification used for other industries; however, at its most fundamental level, the Hyperloop is a rail-based transit system. Accordingly, the companies that produce Hyperloop pods would be considered railcar manufacturers within the Train, Subway and Transit Car Manufacturing industry. In the short term, these operators would not directly compete with non-Hyperloop-related companies. However, in the long term, this technology has the potential to replace current railcar demand, threatening the structure of the industry. IBISWorld expects the industry’s revenue will grow at an annualized rate of 5.4% over the five years to 2022. The proliferation of Hyperloop projects would likely bolster that figure if operators produced Hyperloop-specific cars. By cutting demand for traditional passenger cars, a successful Hyperloop could threaten operators that do not produce materials for Hyperloop tracks. Operators not making the Hyperloop’s magnetic levitation (MagLev) cars could be forced out of the industry in the long run due to low demand for traditional railcars, potentially threatening enterprise growth in the Train, Subway and Transit Car Manufacturing industry.
The rough Hyperloop cost estimates outlined in Musk’s original 2013 presentation remain the best publicly available valuations, though they are considered to be on the low end of the possible cost range. Musk’s estimated standard-capsule cost of $54.0 million is significantly more expensive than other kinds of transit passenger cars. However, given that the capsule is self-propelled and achieves extreme speeds, its costs are more comparable with that of an airplane. By combining rail convenience and near-airline speed, the current conception of the Hyperloop presents a clear challenge to operators in the passenger services segment of the Rail Transportation industry. Overall industry revenue is estimated to grow at an annualized rate of 3.2% over the five years to 2022, but the implementation of a Hyperloop system would almost certainly mitigate growth for players in the Rail Transportation industry.
In its 2016 “Hyperloop Commercial Feasibility Report,” the US Bureau of Transportation Statistics (BTS) suggested that the system is most comparable to air freight with regard to moving cargo. Hyperloop trains have the potential to make rapid deliveries of smaller cargo shipments from dense port areas to regional hubs, but traditional freight systems would finish specialized deliveries. As a result, the Local Freight Trucking, Long-Distance Freight Trucking and Ocean and Coastal Transportation industries would likely experience increased efficiency, potentially leading to heightened revenue and profit margins.
How will we get there?
The Public Transportation industry, which includes bus and rail systems, has the potential to experience an increase in demand if it serves as the service-focused portion of the Hyperloop system. However, it is not yet clear how the systems would be operated. As these projects enter production stages, Hyperloop companies are expected to design, develop and install the tubes in which Hyperloop pods will travel. These tubes present a major cost associated with the potential development of the systems. The Heavy Engineering Construction industry includes companies that build and install transit and train tracks, and would likely encompass the tube and guide-rail systems used in the Hyperloop design. Moreover, based on Musk’s original Hyperloop presentation and information aggregated by the BTS, the tubes are the most expensive portion of the system. As a result, Hyperloop companies are likely to be primarily heavy engineering companies. Based on the original West Coast Hyperloop route outlined in Musk’s 2013 presentation, the 709.2 mile tube would cost $650.0 million, the technology to create the near-vacuum environment would cost $260.0 million and the solar panels and energy would cost $210.0 million. Therefore, infrastructure construction for Hyperloop projects would greatly bolster Heavy Engineering Construction industry revenue, which is currently expected to rise an annualized 4.8% over the next five years, and could add new major players to the fragmented industry.
The recently renewed interest in the Hyperloop has also drawn increased attention to the Boring Company, a privately owned company founded by Elon Musk. The company will likely construct the tunnels for the Hyperloop systems. The Boring Company, then, could potentially become a major player in the Excavation Contractors industry, which includes tunnel-building operators. The company sets itself apart by using its own proprietary boring machines, which can continuously and autonomously bore while simultaneously putting the structure of the tunnel in place. This drastically increases the efficiency of the process, further rendering the company the primary choice for Hyperloop projects moving forward.
Recent indications from the closely held company suggest that the Boring Company is focusing on a more holistic approach to Hyperloop projects. The company is developing systems that allow for the total construction of the tunnel, tube and guide lines, as well as a system that enables cars to be lowered from the street onto a cart that would run on the Hyperloop guide line. This vertical integration will likely give the company a competitive advantage should the projects progress, which may potentially stimulate acquisition activity moving forward. Whereas other companies are likely to follow traditional infrastructure finance models, the Boring Company’s structure would expose them to more risk, but has the potential to progress faster.
Overall, the excavation of tunnels and the construction of tubes and pods could boost activity in the Train, Subway and Transit Car Manufacturing industry, the Excavation Contractors industry and the Engineering Construction industry as new entrants work to build the complex system. Should Hyperloop construction ensue, most industries involved would experience an influx of new operators and increased demand. However, those that intend to compete with major player efficiencies and capsule manufacturing in the long run could experience some decreases in demand.