What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing there's, no doubt that elon musk is one of the most influential people in the world of technology. Today, his two most well-known ventures are tesla and spacex. Both of which have been tremendously successful and push the bounds of what is considered possible in addition to these two ventures, musk has also started or invested in many other companies which are less well known to the public. One of the most significant of these projects is the boring company.

In 2017, they put out a promotional cgi video. Their vision was to build a massive network of underground tunnels, which would transport people at high speeds. Underneath big cities musk claimed that he could build these tunnels at a fraction of the cost of traditional subways, making them economically viable. Even if they charge very low fees, they would also be able to reach speeds in excess of 120 miles per hour or more than double what you could drive even on a highway.

The idea is that such a system would alleviate the high traffic congestion that plagues most major cities. Their first target would be to build a multi-mile tunnel under los angeles, a city notorious for its traffic jams in 2021. Four years after releasing their initial concept, video, the boring company officially opened up their first tunnel available to the public. The tunnel can take passengers 1.7 miles under the massive las vegas convention center, but the specs of this las vegas tunnel fell far short of expectations.

Unlike the projections in the cgi video cars can only travel at a maximum speed of 35 miles per hour. Additionally, they require a human driver behind the wheel, we're certainly a far way off from the concept shown in the cgi video. It's also unclear if the current las vegas tunnel will even be economically viable in this video. We'll look at what's going on with the boring company and whether they'll be ever able to achieve musk's original vision.

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Every major city has a subway system transporting hundreds of thousands of people per day. The problem is building subway. Tunnels is an extremely long and expensive process. It's not unusual for a subway project to cost upwards of one billion dollars per mile.

In fact, a recently proposed extension to the new york city subway is estimated to cost an eye watering 3.9 billion dollars per mile because of their high construction costs. Many subway systems are over capacity and can't fully alleviate the traffic congestion problem at the cost of one billion dollars per mile. The idea of creating dozens of lines going all across the city would be infeasible for the boring company to work. They needed to decrease the cost of tunnel boring by multiple orders of magnitude.

In a 2017 ted talk, musk explained how he could reduce the cost of tunnel boring by more than 90 percent. Firstly, his tunnels would only need to fit one passenger car, not an entire subway train. This allows for a four-fold decrease in cross-sectional area and a corresponding decrease in price. Secondly, he would build a new boring machine that digs and lays down reinforcements for the tunnel wall.

At the same time, this would double the speed of tunneling and cut the cost. In half and finally, you would increase the power of the machine and make it another two times faster. Adding all these cost savings together, you can get a 16 times decrease in price. Now, instead of costing 1 billion dollars per mile, the boring company's tunnels will only cost 62 million dollars per mile.

At this point, the vision for dozens of sprawling tunnels starts to seem more reasonable. While these projections, all sound good talk, is cheap, starting a new company from scratch and hoping to have 16 times, improvements on the established methods was a long shot from the beginning. They started off by buying a commercially available tunnel, boring machine or tbm. These types of traditional tbms generally travel at about 1 14 of the speed of a snail.

A tbm is a massive thing that needs to drill through thousands of tons of rocks and dirt. They unveiled their first tunnel in 2018. After about one and a half years of construction, it was a 1.1 mile tunnel near the spacex headquarters in la cars, can travel at a top speed of 40 miles per hour and can traverse the 1.1 mile stretch in just two minutes. Tracking wheels are put around the car's tires to help it steer within the narrow confines of the tunnel.

The most encouraging thing about the test tunnel was this: relatively low: 10 million dollar construction cost that's significantly lower than the 100 million dollars to 1 billion dollars. That cost to make a mile subway track part of the cost effectiveness is thanks to the total small diameter of 14 feet. Also much of the tunnel was located under land that spacex already owned, so the permitting process was relatively easy. The fact that the tunnel only cost 10 million dollars per mile was a huge success, but it still took more than a year to complete musk's goal is to increase the speed of tunnel boring by 14-fold, so it'll be as fast as a snail while being as Fast, as a snail doesn't sound like much an average garden, snail can travel one mile in about 21 hours.

If they could actually match the speed of a snail, they could theoretically complete a one mile tunnel project in less than a day, but existing technology won't be enough to accomplish this. They needed to take tbms to the next level, so they decided to build their own new boring machine. Called poofrock. Proofrock was designed to drill one mile in five days.

Remember it took more than a year to build a one mile test track with the godot machine. So this would be a massive improvement. They originally wanted to make another tunnel in los angeles. However, it met resistance in some of the wealthy neighborhoods, where residents sued to stop construction, at least in california, the biggest hurdle to the boring company wouldn't be technology, but regulatory.

The environmental review process can be prohibitively onerous and the local residents often sue as they believe that new construction could decrease existing property values. So in 2019 the boring company set its sights on las vegas, which was much more friendly to them that same year they won a 49 million contract from the city to build a 1.7 mile tunnel under the massive las vegas convention center. It can take a full 25 minute walk to walk across the convention center, but a boring tunnel could take you the same distance in two minutes. They use their internally developed proofrock machine, which is supposed to be much faster than traditional, boring machines.

They started construction in late 2019. It was completed in early 2020. They averaged a construction speed of about 50 feet per day, which is roughly in line with traditional tunnel boring technologies. So he didn't get much of an improvement on speed, but that doesn't mean the project was a failure.

The las vegas convention center paid the boring company 49 million dollars for a 1.7 mile long tunnel assuming they broke. Even they would have spent 29 million dollars per mile on construction. That's a massive step function improvement over the 1 billion per mile cost of traditional subway construction. Part of the reason for the lower cost is the lower diameter.

It's barely wide enough to fit one tesla model x. The way it works is you take an escalator down into the tunnel and order a ride on an app similar to how you would order an uber, a driver and a tesla will pick you up and drive you to the other side of the convention center. With the journey taking about 3 minutes, while they say the tunnel has a theoretical maximum capacity of 4 400 passengers per hour, the highest ever number of actual passengers is transported is 1 355. In an hour, fire code regulations have since capped the capacity at 1200 per hour, so the boring company has proven it can make tunnels at a fraction of the cost of traditional subways, but given their small diameter, can they be economically viable.

In addition to the cost of building the tunnel, it also has 62 tesla vehicles and while the long term plan is to have the tesla's drive autonomously, there are currently human drivers operating the teslas through the tunnel. So at least right now it looks like the single largest line item for the cost is paying the drivers doing some back of the envelope calculations. It looks like the las vegas convention center loop could probably be profitable. Currently they charge no fares.

The convention center authority pays for the operating costs, but it should easily be able to support. A five dollar per person fare its current max capacity is 1200 passengers per hour or six thousand dollars total assuming they pay the drivers twenty dollars per hour, as well as other miscellaneous operating costs. They can probably make about four thousand one hundred forty dollars of profit per hour. The convention center isn't holding an event all the time, but pre-covered they held roughly 50 large events per year.

So it's not unreasonable to assume that it could operate near full capacity for 1 000 hours per year. This would get you to an annual profit of 4.14 million dollars, based on the 49 million dollars of construction costs. That's an 8.4 rate of return, which is not that bad considering the 10-year government bond yields less than 2 percent. Also, the las vegas convention center is just the first iteration.

It's still a long way from the ultimate vision of fully autonomous cars within the tunnel. Tesla already has full self-driving technology, while it's not yet perfect. In complex situations on crowded city streets, it can pretty much drive on highways and simple straight roads with no problem. A boring company tunnel has no incoming traffic no intersections and no pedestrians walking into the road.

They already have ample technology to make the tunnels fully autonomous. It's just a matter of convincing the regulators to finally approve it once they do make it fully autonomous. They can get rid of the employee expense and can probably increase the capacity to at least 2 000 per hour. This could get them to a 20 rate of return on the project and without having any direct competitors for these types of projects.

The boring company has a luxury of being selected with where it expands to forward-thinking. Mayors, like francis suarez of miami, recently proposed a two-mile tunneling project under the miami river for an estimated 30 million dollar price tag. The boring company can go to localities with more relaxed regulatory environments and once they prove the safety of fully autonomous tunnels, they can use this credibility to expand to bigger cities such as new york and l.a musk says he only spends two to three percent on the Boring company with tesla and spacex, taking the vast majority of his focus, and while progress has been slower than many had hoped, they already have proven that they can make economically viable tunnels at a fraction of the cost of traditional subways with almost every major city. Having problems with traffic congestion, it's hard to overstate the potential opportunity for the company.

It might take another three to five years before they can achieve their vision of fully autonomous tunnels, but once it happens, it could easily become a 100 billion dollar company. Alright guys that wraps it up for this video, what do you think about the boring company? Do you think they'll succeed in revolutionizing urban transport? Let us know in the comments section below as always. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.