Economists don't believe the Hyperloop

Tesla and SpaceX CEO Elon Musk’s announcement Monday of a plan for a transit system to speed passengers from Los Angeles to San Francisco in 30 minutes generated a flurry of headlines, but it also has met with skepticism as to whether – even if the engineering works out – the project could really deliver a one-way ticket for $20.  

“There’s no way the economics on that would ever work out,” said Dan Sperling, founding director of the Institute of Transportation Studies at the University of California, Davis.

At projected capacity levels, the so-called Hyperloop would transport 840 people each hour, each paying $20. With capital, labor and maintenance costs factored in, Sperling said, “Those numbers, even in the most outlandish visionary way, do not make any sense at all. The whole technology is unproven. I know he’s a brilliant guy, but it just doesn’t pencil out.”

While Musk and his team project the cost of construction at between $6 and $7.5 billion – the higher price tag for a system that can transport cars in addition to the proposed pods – some observers have questioned those costs based on factors such as whether land rights could really be obtained at the $1 billion projected cost. And it is those costs that result in the projected $20 ticket price.

Bonnie Lowenthal, chair of the California State Assembly's Transportation Committee told the Wall Street Journal, "Big infrastructure projects in California are very difficult. We have very complicated funding, we have environmental protections, seismic faults and land acquisition – but that's just the shortlist.”

Beyond land-purchase issues, any realistic estimate of the costs would say Musk and his team are underestimating them "by at least a factor of 10 to 20," said Michael L. Anderson, an associate professor of agricultural and resource economics at the University of California, Berkeley.

He said the more realistic price for a one-way ticket would reach about $1,000, based on his own projections of construction costs and Musk's proposed capacity of 840 riders per hour.

"You're talking $100 billion to build what they’re proposing,” Anderson said.

Anderson said that while some of the infrastructure is novel, the elevated guideway was not unlike existing structures such as the Bay Area Rapid Transit's aerial tracks. For the Hyperloop's tracks, that alone would cost in the tens of billions. As for the pipeline for the cars, he said, oil pipelines are $5 million to $6 million per mile, and they are seven times narrower than the Hyperloop's would need to be. In addition, the Hyperloop track could not change direction abruptly the way an oil pipeline could.

"It really has to be built to much higher standards than anybody has ever built a pipeline to," Anderson said.

Ultimately, it comes down to the Hyperloop not being able to transport enough people, Anderson said.

"If it’s going to cost $100 billion, you need to make it very high capacity to make it a worthwhile investment and it’s not," he said, explaining that in order to get a 6 percent return, tickets for the Hyperloop built at his projected costs and Musk's proposed capacity would have to be $1,000 each -- a price not enough people would be willing to pay to sustain it.

If the technology came together – and UC Davis' Sperling remains extremely skeptical that it would – he said there would be more than one Hyperloop project.

”If it was such a good idea. There’d be competition,” Sperling said. “If it was so easy and cheap to build, there’d be parallel lines because everyone would be making money out of it.”

Also, Sperling said, it would quickly spread to other regions of the country. Cities separated by hundreds of miles could effectively become suburbs of each other, allowing for far longer commutes.

“You would have dramatically expanded ridership if you charged $20. Today, people pay more than that for parking,” he said.

”People would be commuting everywhere if you could commute that fast at a low cost,” Sperling said. “If you think we have a lot of travel now, you’d have a lot more if you had it so cheap and so fast.”

Musk has said he would have no role in building the Hyperloop, though he said during a conference call after the plans were released that he may build a prototype.

“I’m sort of less concerned about that than just sort of figuring out the technical details,” Musk said in response to a question about starting a business for the Hyperloop. “It’s not a high priority.”

UC Berkeley's Anderson said there's a reason even though the idea has been around for a while nobody has really pursued it, and Musk's reluctance to build a business around it should be a red flag.

"If it were a really great idea, he’d want to commercialize it," Anderson said. "It’s a strong indication he himself doesn’t think it’s going to be very profitable.”