Business Models
Elon originally proposed a per-rider ticket price of $20 one way with annual riders of 7.4m each way and the cost of the $6b construction amortized over 20 years. Running basic calculations show that $20 * 7.4m * 2 * 20years = $6b. This would only barely cover the construction costs, let alone the interest on that amount or the annual maintenance, personnel, etc involved with operating the Hyperloop for 20 years. I suspect he plans on making up the difference with advertising or additional costs for freight and car traffic.
I have many ideas for monetizing this project and it would largely depend on what funded the construction.
Right now, it's difficult to estimate the annual costs to operate and maintain the Hyperloop, so these are just projections. Ideally, I would prefer to pay living wages of at least $30/hr (no minimum wage jobs), and everyone be full time (40hr/week).
Also, keep in mind that energy costs will be zero since it will be self powered by solar.
In a worst case, I expect about 30 people to be working at a time in a Hyperloop terminal to handle crowd control, helping passengers, cleaning and providing security. Over 3 shifts this is about 90 people per terminal so 180 people for both the LA and SF terminals.
180 people * 40hr/week * 52week/yr * $30/hr = $11.2m/yr for frontline team members
Outside the station, I expect to have at least 20 maintenance personnel responsible for maintaining the operation of the tubes and pods. These would be slightly more skilled jobs and would likely need to be paid more, so lets assume $50/hr.
20 people * 40hr/week * 52week/yr * $50/hr = $2m/yr for maintenance team members
In the head office will be most of the management and R&D personnel which will be generally salaried at lets say $150,000/yr average and there will probably be at least 30 of them (C suite, accounting, R&D engineers, etc).
30 people * $150,000/yr = $4.5m/yr for management and R&D
While this brings total salaries to about $18m/yr, they are usually only about 70% of the total cost of an employee after adding in our full benefits package, matching 401k, etc.
$18m/yr / 70% = $25.7m/yr total salaries, compensation, and benefits
While it's difficult to estimate maintenance costs for the Hyperloop, I'm guessing that it will be about $10,000 per mile per year per direction. This assumes that in a given year the equivalent of about 20 tube sections would need to be replaced along the 380 mile route.
$10,000/mi * 350mi * 2 directions = $7m/yr
For pods, I think it's reasonable to assume we may have to replace about 5 pods per year entirely (note this may include fractions of a pod such as needing to re-upholstery seats within a pod, replacing an individual compressor within a pod, etc).
5 pods per year * $1.5m/pod = $7.5m/yr
Maintaining the stations will require cleaning supplies, equipment repair, building maintenance, etc. Maintenance costs of a building are about $0.50/sqft (source, but I'm not sure if those are annual numbers or monthly so assume monthly), so lets assume we have three 100,000 sqft facilities to include the home office as well.
100,000sqft/facility * 3 facilities * $0.50/sqft * 12mo/yr = $1.8m
$7m + $7.5m + $1.8m = $16.3m/yr Total equipment and maintenance
Salaries: $25.7m/yr
Equipment/Maintenance: $16.3m/yr
Total Annual Operational costs: $42m/yr
Wikipedia: "In 2005, BART required nearly $300 million in funds after fares. About 37% of the costs went to maintenance, 29% to actual transportation operations, 24% to general administration, 8% to police services, and 4% to construction and engineering. "
Considering the following differences:
Metric BART Hyperloop Difference
Miles of track 107miles 350miles 3x more
Vehicles 670 120max 5x less
Stations 44 2 20x less
Op Costs $300m $50m 6x less
I think it's reasonable to expect a doubling of estimated costs, so we can assume a $100m/yr operating costs.
This idea would probably be the best thing to happen to the country since the creation of the Eisenhower Interstate system, which means it has an exactly 0% chance of ever happening. It would be a $0.10/gallon federal tax added which would generate an estimated $20b/yr which would allow the construction of 500-1000 miles of Hyperloop every year. Individuals would be able to ride the Hyperloop for free and the operating costs would be met via advertising, charging for freight, and charging for cars. The advertising would be in the pods, stations and the ability to name a station similar to sports stadiums.
This would allow people to travel all over the country quickly and for free without using any fossil fuels. New York to LA would only be about 4hr total. Imagine being stuck in cold Chicago and being only a quick 2hr trip down to sunny beaches of Miami. Living in Denver and commuting to work in Los Angeles. It would revolutionize how people thought about transportation in this country. Want to see in a show in NY? You could Hyperloop to NY, catch a matinee and be back home, all in one day.
Passengers: Free
Freight: $2.00/mile (Compared to current freight costs of about $2.55/mile, this will be a good savings, source )
Cars: $0.75/mile (This is technically more expensive than driving, but depending on how long you will be at your destination, it could be much cheaper than renting a car+flight).
Advertising: $4,000/mo for in-pod ads, $8,000/mo for station ads, $5m/yr to name a station.
In-Pod Advertising: 30 pods * 40 ad spaces/pod * $4,000/ad/mo * 12mo/yr = $57.6m/yr
Station Naming: 2 stations * $5m/yr = $10m/yr
Station Ads: 10 station ad locations/station * 2 stations * $8,000/ad/mo * 12mo/yr = $1.9m/yr
Freight: 10 pods/hr * 24hr/day * 365day/yr * 350mi/pod * $2.00/mi = $61.32m/yr
Cars: 10 pods/hr * 24hr/day * 365day/yr * 350mi/pod * 3 cars/pod * $0.75/car*mi = $68.9m/yr
Total: $ 199.72m/yr
Given the above estimate of operating costs, we have a very healthy operating margin, and assuming the operating costs are off by a factor of 2, still gives us a 50% operating margin.
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In 6 years, New York and LA would be connected via Hyperloop
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In 10 years, all major cities will be connected
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In 20 years, most cities with an airport would be connected
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Political gridlock against any new taxes
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Lobbies in the following industries would be opposed to this and fight it tooth and nail: Airlines, Railroads, Road Construction, Oil/Gas, Hotels (since people would need fewer overnight stays), Car Manufacturers, etc to name a few. All of these are very powerful and very involved in protectionism to preserve their business models.
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Lack of proven technologies (more on that later)
This is basically the same as Option A, but taking it to each individual state. Asking for a $0.10/gallon tax at the state level (maybe more depending on the estimated revenues from that state), and then committing to building as many miles of Hyperloop that tax will permit in that state. General construction estimates are at about $20m/mile. This will probably be easier in some states like California, and harder in other states like Texas.
Crowdfund the estimated $10b necessary to build the initial manufacturing facilities, test tracks and the final LA/SF line of the Hyperloop and use that as proof of the viability of the technology and business model, then go to the federal/states as in Option A and B to fund construction of future Hyperloops.
This would be the largest crowdfunding operation even undertaken by a significant order of magnitude. The largest crowdfunding effort so far was only about $30m, so this is about 300x more.
If the crowdfunding effort falls short, then we hopefully get as far as the initial prototyping and a few miles of test tracks to prove the technology, then use that success for funding the remainder or trying to get government interest on board.
Here are my current thoughts and plans for crowdfunding the Hyperloop.
Raise the money via IPO. To do this, we would need to create an entity with about 1b shares and IPO about 400m of them and hope for $20/share. This would raise $8b which should hopefully be enough, and create a company with a market cap of $20b on revenues that might reach $700m if things go well, yielding about a 28x discrepancy between the market cap and the revenues, which actually wouldn't be too bad, just that it's not a sustainable way to raise the money for the hyperloop. The next step would be to hope the proof of concept would encourage public investment.
Shop the idea around to other countries and see if they will be interested in bringing Hyperloop to their country.
Seek private investors. This is less desirable since they will want to be paid back and with a profit necessitating charging individuals for Hyperloop transit. However, this is probably the most likely way to raise the $10b initial amount for the LA/SF line. Also, we would have to charge passengers $0.10/mile so $35 one way on the Hyperloop.
Passenger: 30pods/hr * 24hr/day * 365day/yr * 45 passengers/pod * $0.10/passenger/mile * 350miles = $493m/yr (max)
Other (same as above): $200m/yr
Total Revenues: $693m/yr
- Operating Expenses: $100m/yr
= Net Profit: $593m/yr
Time to payoff $10b = $10,000m / $593m/yr = 16.8yrs (assuming no interest on the investment)