Planes, trains and automobiles face a new challenger. Hyperloop is taking them all on, with its promise of lightning-fast green transport.

This idea has certainly burst into the public consciousness – as you can tell from the frequent media coverage. Just a couple of weeks ago, I watched a talk by Bibop Gresta, chairman and cofounder at Hyperloop Transportation Technologies (HTT). It was part of the Tech XLR8 trade show, within London Tech Week. His panel had drawn a pretty sizeable crowd, so it was obvious a lot of people were interested.

To see an investment return, you need more than just hype. Today, we’ll pick apart this vision, and see if the business case stacks up.

What is Hyperloop?

At its simplest, Hyperloop is a nearly airless tube. Inside, pods are propelled electrically – potentially at staggering speeds. It’s rather like the London Underground, crossed with Concorde. Tracks could run above ground, on stilts – or be buried in tunnels.

Inside, the moving pods are held above the floor – meaning friction will be minimised. This levitation trick is by accomplished by an air or magnetic cushion, depending on design. Low air resistance means that Hyperloop pods can travel staggeringly fast – far faster than an airliner. Once at speed, there is very little energy consumption. This efficiency helps keep operating costs down. There’s also no need for constant equipment upgrades – unlike in the airline industry, where planes are often scrapped in the name of fuel efficiency. What’s more, the use of electrical power means that Hyperloop can use renewable energy – just like a train. This approach could make today’s air travel look dirty and slow, by comparison.

Where did Hyperloop come from?

Elon Musk created the idea behind Hyperloop – or at least resurrected it, from its early 20th century roots. You may know Musk for his spectacularly-successful Tesla. This firm encompasses the next generation of automobile technology, and is also fast becoming the dominant player in stationary batteries. Musk additionally founded SpaceX – which is the most successful private spaceflight company, by far.

However, being a bit busy with spaceships ‘n’ stuff, Musk open-sourced the Hyperloop idea. The approach is now being commercialised by HTT, and Hyperloop One.  Musk’s previous feats of technology and economics should reassure you that the basic idea of Hyperloop is likely to be pretty sensible – even if he’s ultimately not involved in the firm that leads in the sector.

Hyperloop makes HS2 look like something the Victorians could have built

You may remember our “Day in 2050” series. One storyline was about how a Hyperloop was built near the derelict wreckage of HS2. Now, that’s just a story – and I’m not HS2 detractor. Nevertheless, there are early plans to bring Hyperloop to the UK – and this could mean a London-Manchester journey of around 20 minutes. You’d probably struggle to do it faster in a fighter jet – if you included taxiing, take-off and landing. That’s revolutionary in terms of convenience – and it could also be price-competitive, too.

Hyperloop could well be a revolution

This concept might sound like a pipe dream – but in fact it’s a relatively sensible technology proposition. Furthermore, Hyperloop technology is getting some serious buy-in from the public sector. That’s vital, bearing in mind it’s fundamentally an infrastructure play.

Hyperloop One is already in serious talks with the Indian government – and HTT has also put in a proposal. If this deployment is successful, it will be an example of a leapfrog technology – as India could skip conventional high-speed rail, altogether.

We’ve seen leapfrogging before, in mobile phones. Africans now have near-universal access to cellphone networks. By contrast, they don’t generally use fixed-line phones. Particularly in rural areas, the mobile phone network has simply leapfrogged the infrastructure we Westerners are familiar with.

As such, Hyperloop companies may find that developing-world markets are indeed where they find their first opportunities. With test track construction underway in the US, and government negotiations advancing, it may be the case that Hyperloop’s day is just about to come.

What about competing technologies?

Actually, the alternatives aren’t that great.

Airliners are proving difficult to decarbonise – particularly on long-haul flights, where battery-electric power isn’t viable. On busy, overland routes, Hyperloop certainly has the edge – at least in theory.

Overall, Hyperloop technology fares well, against both planes and trains. It’s fast; it can take you to the centre of a city; it supports very frequent departures; and it efficiently uses low-carbon energy. Furthermore, it’s a good neighbour – with no local pollution, and little noise. Additionally, the tracks are likely to be elevated or buried – so they won’t get in the way of roads, buildings, or farms.

As for road transport competition, forget it. Cars are slow, burdened by congestion, and energy inefficient. They’re only any use for shorter trips. If you want to travel around your destination, you can always get an Uber – and soon driverless technology will make these an inexpensive companion to long-distance public transport. For anything long-distance, Hyperloop wins hands down.

Hyperloop has problems, too

Hyperloop doesn’t have everything its own way. The key problem is the same as that of old-fashioned trains – it only goes where there’s track. Compared to planes, that’s its Achilles heel. Certainly on less-busy routes, it will be a while before Hyperloop grounds competing airlines.

Geography is a huge issue, however. Mountains make things very expensive – as Hyperloop doesn’t like bends or humps. Worse still, it is all but impossible over water. If you can’t build a bridge or tunnel, you’ll have to stick with a plane.

Beyond the infrastructure issues, there are big technology risks. Development times being touted are on the scale of years – and that just doesn’t seem realistic. Building a huge infrastructure project is hard – and the technology is only in prototype stage, at present.

I’m particularly concerned about the ability to transport passengers anytime soon. While I’m not overly worried about the technology itself, I think there are a host of problems to be addressed, before governments will let the paying public onboard. Challenges range from the difficulty of evacuating pods during a stoppage, to the risk of damage to the tube. Unless all the tubes are buried, they’re likely to be vulnerable to many of the issues affecting railway lines today: falling trees, vehicle strikes, and even terrorism. A more cautious start, with freight only, is more feasible.

I certainly don’t mean to be a Hyperloop naysayer. Nevertheless, I think we’ll have to wait a decade or more for large-scale passenger use. In that time, we could easily see some serious competition emerging – particularly from electric aircraft. These will be quieter and cleaner than today’s planes – and their reduced noise will also allow flights from urban runways.

In conclusion, Hyperloop’s great – but don’t lose your sense of caution. This new technology can’t do everything. Planes are more flexible, trains are built already, and (driverless) cars will still be needed outside denser urban areas. If you’re tempted to invest, you should also check out some of the lurid, soap-opera allegations and lawsuits swirling around. This breakthrough technology is attracting people who may politely be termed “characters” – and some of what I’ve read makes even Uber look tame!

Feedback, as always, to: andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor