Hyperloop the future of travel?
Hyperloop is a start up project with open funding, which is lead by Elon Musk, Canadian-American magnate inteupreneur. Musk has a variety of successful startups in his backpack, from widely known Paypal and Tesla to OpenAl.
The hyperloop project was first brought to Elon by his colleague, engineer Brogan BamBrogan in year of 2012, the idea of the project is in removing the limits of travel for both individuals and businesses by cutting the time taken to travel long distances. The Hyperloop team made of 150, from which all of them are experts of their job, have brought this amazing technology of high energy efficiency coupled with electric propulsion yield an energy elegant, carbon free mode of transportation, which will allow the world to transport people and goods inexpensively, safely, and at speeds never thought possible.
We are going to look at some cases why this project might have potential of spreading like a disease without a treatment, or wilt in the ocean of transport start-ups.
In 2012, when they’ve set up the stage A of investment, where the project has collected about $11.1mln for creation of team of experts and scientists from all over the world. During stage B the $80mln where Sherpa Capital was the lead investor. There was also an injection of $1.5mln of private equity which is insignificant compared to a budget that is needed for the start of full scale production. Currently the project is on stage C of investment, which means the money that is going to be invested now, will be used to scale the project up and allow it to grow at faster rates. The orders for hyper loop rail construction come from all over the world from BRICS, America and mainly EU countries.
In 2013, Hyperloop headquarters have made an estimation of $6bln that have to be invested in order of the project to grow and develop, the estimation is so large due to hight cost of production and technological difficulties in production of the raw materials needed for the tube.
The $6bln are mostly requested not from venture capitalists or private investors, but more from governments who are interested to reduce the limits for entrepreneurship, two of which are communication and transportation. In world that we live in, entrepreneurship is the core part of economics, as most of the countries operate in free market systems. As expected, the cost of building the tube it self will be enormous, about $6bln for about 354 miles between , which is about $17.4mln for a mile of a tube. Although the starting costs are large, the pay-back-period is meant to be about 2 years by an estimation of business consultants of Hyperloop project.
In order to make a so called «investment hype» around the project, the hyperloop global challenge was set by this team of engineers, which includes local applicants, so as an example Russian companies, which are interested in local management, construction and maintenance of hyperloop are currently in contact with the team of hyperloop scientists. By setting smaller localized teams outside of the mother city/country of the project. This project will significantly increase the awareness and limit the spending for growth as some technologically advanced companies form all over the world would only dream of working with these projects, especially as they are planned to be supported by ventures as well as the governments. Let’s look at Hyperloop in Russia. Currently at SPIEF(economical forum in Saint Petersburg, Russia), the head of ministry of transport of Russia Maksim Sokolov stated that Hyperloop transportation system should be built on the boarder of Russia and China, as China is the second biggest trading partner of Russia after EU. mThe train will be used for transportation of cargo goods, this is a significant change for the economies of both countries. By allowing quicker exchange of goods. The volume of sales would immediately increase due to lower costs of transportation as hyperloop uses renewable electricity only. In Russia the cost of energy US cents/kWh is about 11which is only lower by 1 from USA with the value of 12. The problem with that concept investment into construction. As the economy of Russia is in devastating state, the opportunity cost of the Russia’s money is enormous. Still, we should not forget about minimum living wages and pensions that have to be paid as well as the x percentage of money that has to be reinvested into «money laundry» projects such as road re-building, which eventually doesn’t make any difference. Talking about Russia, we should also remember how pro-presidential the television and other medias are. Chinese investors money, would have been right thing to invest, as MP especially because the trading between Russia and China is bilateral. The trading between these two countries has grown by about 17.8% in the past 11 years, whilst the last years trade investment figure of $100bln is expected to grow to $200bln by 2020.
As the economies are expected to grow and therefore demand more, therefore it is appropriate for hyper loop to use more productive type of transportation. By reducing the time lag between purchase and delivery of goods and services as well into one of the countries would even further on boost the growth of LRAS shifting to right. The price though would drive down due to cheaper transportation cost, therefore reducing inflation in Russia,where rate of inflation is at 7.3% at the moment when the target rate is 2%.
However, if we look at USA with hyper loop projects all over the states, it can lead to a income tax problem. People who work in the centre of New York as an example would live in Wyoming, where there is basically no state income tax. The amount of tax would dramatically decrease as about 33% on average across all of the states live in rented accommodations rather than owner-occupied. Eventually this advance in transport would lead to decrease the price of housing, due to mobility of factors of production. In states and on all of continents the price of housing is higher towards cities where there are more businesses, by spreading the population it would lead to greater entrepreneurship levels in different areas due to greater population in outskirts, therefore increasing price of housing in these places, reducing the geographical inequality.
As the transport such as planes and trains are popular due to their comfortability, availability and safety, the hyper loop will be the game changer for individuals. The market for airplane tickets is extremely competitive, and the airports that help the air companies to cooperate efficiently would suffer from hyper loop. There is not much innovation in civil plane construction, the air business is operating as efficient as possible. The risk in the case of hyper loop, is in taking over the customers of airlines and therefore it will lead to less demand for airports and off-land transport. The total revenue of commercial airlines in 2016 is about $717bln, a huge market to be destroyed. The amount of tax paid by all of the airline companies to the government, or even the amount of jet fuel demanded by the airlines is uncountable. The price for oil that is used in fuel production is about $49 per barrel (23 june 2016), which is low compared to $130 per barrel in June 2014. By decreasing the demand for air travel the derived demand for fuel and therefore oil will be reduced, this would lead to further decrease in oil prices which could hit the oil extracting economies such as United states, Saudi Arabia and Russia who are the biggest exporters of oil.