Last month, Elon Musk provided an update on his Boring Company, a pet project aimed at solving traffic in Los Angeles. Amid the media attention and praise ladled on the Tesla (TSLA, Financial) and SpaceX CEO, it was easy to forget that thus far all The Boring Company has delivered is a list of vague promises and lofty goals. According to company website’s FAQ section, the average cost of subway tracks runs in the range of $1 billion per kilometer. Musk’s stated goal is to reduce this by a factor of 10 and the two solutions proposed are to increase tunnel boring machine (TBM) speed and to make the diameter of the tunnels smaller.
Don’t trust the hype
“Increase TBM power. The machine’s power output can be tripled (while coupled with the appropriate upgrades in cooling systems).” - The Boring Company Website, FAQ
This is a classic Muskism: a claim that the technology currently being used by industry leaders is lagging behind what is mechanically and financially feasible, with the implication that his unique insight and talent are the only things that can correct for this inefficiency. It seems highly unlikely that companies like Caterpillar (CAT, Financial) and Herrenknecht, with decades of experience and ability to attract graduates from the best engineering schools in the world, have chosen to simply ignore an upgrade that could increase output by a factor of three (which would presumably provide a major advantage over one another).
A similar point can be made with regards to Musk’s desire to modify his TBM to electric power. The energy density of lithium-ion batteries still significantly lags behind diesel and gasoline, so it is not clear how the switch to electric power will increase tunneling efficiency.
Other questions revolve around the design of the overall tunnel network. Instead of having trains move people from station to station, as in a conventional subway system, Musk envisions his project having hundreds of elevator shafts spread out through LA that will carry passengers (and cars!) down to individual pods that will whisk them around the city.
Leaving aside the absurd inefficiency of transporting cars on trains, the key problem is that the more moving parts a system has, the greater the probability of failure of any constituent part. The greater complexity and associated maintenance costs of such a system could well outweigh any efficiency gains that slightly better (at best) tunneling technology can provide. And all of this is supposed to cost just $1 per ticket, a figure seemingly plucked out of thin air.
Musk is right about at least one thing, however. Tunnels are indeed much too expensive to dig in the U.S. The problem is that this is not due to existing machinery being too inefficient; rather, it is an issue of poor urban planning and weak municipal institutions being held hostage by powerful unions and lobby groups. New York’s recently completed Second Avenue subway on the Upper East Side of Manhattan cost an eye-watering $2.5 billion per mile.
To put this into a global context, the price tag for Singapore’s Circle line was just $130 per kilometer. Expansions in Paris and Berlin have come in at $250 million per kilometer in the past. Europeans and Singaporeans don’t have access to better machinery -- they simply have better institutions in this regard. Perhaps Musk’s efforts would be best spent disrupting the byzantine world of municipal government in the U.S., rather than digging tunnels.
What comes up must come down
The Boring Company is owned and funded by Musk, and what he chooses to do with his personal wealth is largely his own business. However, the problem with making unrealizable promises is that eventually people will begin to question your credibility more generally. A strategy of generating media hype around the never-ending array of his Panglossian projects may boost Musk’s fortunes in the short term and divert some of the recent criticism that he has faced, but eventually it is likely to bring more negative scrutiny on all his activities. If, as is becoming more likely, Tesla ends up requiring additional capital (via a secondary offering, or through the issuance of more debt), this legacy of broken promises could come back to haunt him.
Disclosure: I/We are short TSLA via long dated PUT OPTIONS.
(This article was co-authored by Stepan Lavrouk, an investment analyst with Almington Capital - Merchant Bankers.)
