Toll Tunnels, a $30 Trillion TAM?
Introduction
Globally there exist thousands of places where traffic is highly congested, resulting in stop and go traffic jams. Building a 100 mile long, high speed transportation tunnel along such a corridor will cost around $2 billion and generate around $30 billion in net profit. Assuming 1,000 similar locations the global TAM (total available market) would be over $30 trillion.
If we assume 10,000 routes the global TAM would be $300 trillion, a more likely value. How widely these tunnels will be distributed remains to be learned, so the $30 trillion is a more conservative estimate for global TAM.
Today, however, precisely zero of these Toll Tunnels have been constructed and put into operation. Yet the technologies needed to build and operate them have recently come into existence. We are at a temporal vertex between the past when these tunnels do not exist and the future when they will be ubiquitous worldwide.
How are these tunnels different from existing tunnels?
Source: Interesting Engineering
At 24.5 km (15.2 miles), the Laerdal tunnel in Norway is the worlds longest road tunnel. In spite of the short tunnel length, driver fatigue and hypnotism from passing lights in tunnels is a serious problem that can lead to crashes. To improve the safety of motorists, tunnels of our past and present tend to include certain qualities. Typically, tunnels… :
Source: Engineering.com Laerdal Tunnel
are built to bypass obstacles and to serve ICE (internal combustion engine) vehicles piloted by humans
have large inside diameters
have large ancillary ventilation tunnels to remove toxic gases
have slow speed limits
have fatigued driver rest areas
have high cost of 10X to 100X per lane mile vs surface freeways
These features combined increase the cost of construction of the tunnels and also decrease the toll revenue for tunnels that charge tolls. (Faster travel speeds increase toll revenue due to higher vehicle throughput). The result is that past and present tunnels are money losing municipal projects to benefit local citizens. They do not pay for themselves like High Speed Toll Tunnels will.
In contrast, the new High Speed Toll Tunnels will… :
be built to enable fast travel speed (120MPH / 193KPH) using zero emission vehicles piloted by computers
will have 90MPH tailwind to reduce the aerodynamic drag and double the range of BEVs
have small diameter tunnel bores (to lower construction cost)
eliminate toxic exhaust emitting vehicles (to reduce ventilation cost)
eliminate ancillary ventilation tunnels (to reduce cost)
Have a high fixed speed at 120 MPH (193 KPH)
only allow zero emission / computer driven vehicles inside
It turns out that by making these changes the cost of construction will be below the net present value of toll income for operating these tunnels as toll roads. In other words, they can be profitably built and operated by private companies. To reduce the cost of construction of the tunnels, it is necessary that only vehicles that are zero emission and equipped with full self driving software be allowed into the tunnels.
This restriction means that to use the tunnels, most citizens will need to purchase a new vehicle capable of navigating them. Sales of vehicles around a new, 100 mile long tunnel in Los Angeles will be around 1 million vehicles.
Compared to the 15 mile long Laerdal tunnel, High Speed Toll Tunnels will commonly have lengths around 100 miles in urban areas (e.g. I-405 in Los Angeles) and 3000 miles for major cross country auto routes (e.g. I-10 from Los Angeles, CA to Jacksonville, FL). These lengths are possible because cars today can drive themselves, releasing the vehicle “driver” to do whatever he or she desires.
Who wants to drive through a tunnel?
An initial knee jerk reaction might be to think no one will desire to use tunnels. But one must consider the benefits of 120MPH speed, no traffic, and fully autonomous travel. Will you prefer to “enjoy” the scenery for 8 hours driving from Sacramento, CA to Los Angeles, CA or would you prefer to spend 3.5 hours in a tunnel, watching a movie, at 120 MPH? Would you prefer to commute on a surface freeway in stop and go traffic for an hour, or zip through a tunnel in 10 minutes to get home each day?
Many will choose the faster method of travel. Just like many opt to fly in a plane, the same will be true for tunnels. People who must make a longer journey in the shortest possible time will choose the faster method of travel.
There exist two broad types of these new transportation tunnels. The first type is essentially a new form of subway. The second type is a new form of toll road.
Tunnel type 1: Subway Like Tunnels
The first type of tunnel is exemplified by what the Boring Company is building in Las Vegas. These tunnels are intended for public transportation and pedestrian usage. Typically, an entity such as a municipality will hire a company like The Boring Company to build the system of tunnels and stations within a community.
These tunnels should be lucrative in areas where there is a lot of pedestrian traffic. Along the strip in Las Vegas should be a perfect location for this sort of tunnel system
Extending service to the rest of the city, however, may not generate equivalent profits. Tourists need transportation, people living in Las Vegas driving a car from home into the city center, do not.
Tunnel type 2: High Speed Toll Tunnels
The second class of tunnel is most similar to a toll road or a toll freeway. When a freeway route becomes highly congested the historic solution has been to add another lane to the freeway. Other solutions have been to build toll roads or commuter lanes bypassing some exits for long distance commuters, following the same route.
The addition of more and more lanes has been taken to ridiculous extent in some places, for example this freeway in China. If this route had a High Speed Tunnel beneath the surface freeway this traffic jam would never happen because the surface freeway density would be reduced. One High Speed Tunnel lane can carry 3 surface freeway lanes worth of traffic.
A High Speed Toll Tunnel is similar to the toll road in that it reduces traffic on the surface freeway by providing an alternate path for vehicles to follow. It differs, however, because rather than another road above ground occupying land usurped from private property owners, the toll tunnel is built below ground where nobody lives. A Toll Tunnel could literally be built below one of the surface freeway lanes of traffic, or, in a central median between lanes of traffic, or, below the grasses on the sides of an existing freeway.
A tunnel could be bored below ground or it could be built using a cut and cover trench into which the tunnel segments are inserted. Once covered over, there is nothing on the surface to tell anyone that there is a tunnel below ground.
In addition to creating another path beneath an existing congested freeway, a tunnel can just as easily be constructed beneath highly congested urban streets.
This image of congested streets in Mumbai, India shows another place where High Speed Toll Tunnels will be built. Some of the vehicles on these roads are heading to a destination one mile away. But some are heading to destinations tens of miles away. If those vehicles that are going to destinations further away were able to disappear into long distance tunnels, the surface roads congestion would be reduced. Below ground we can construct an unlimited number of traffic lanes and eliminate heavy traffic anywhere we desire.
Cost of Toll Tunnels vs Widening a Freeway
In the United states, the average cost to widen a freeway is around $25 million per lane mile. In California it is closer to $45 million per lane mile. Contrast these figures to the ~$10 million per lane mile to bore a high speed tunnel.
Then consider that the high speed tunnel can carry up to 3 lanes of surface freeway traffic. This means that per surface freeway lane mile the tunnel actually costs around $3.5 million.
High Speed Tunnels are, surprisingly, the best choice based on cost. What’s more, it is possible that a tunnel company could build a tunnel at zero charge to a local municipality because the anticipated net profit will more than pay for the tunnel construction cost.
ROI on a $2B Investment can be $20B to $30B
The technologies needed to build these tunnels didn’t exist 10 years ago. Now they do, but these tunnels have another attribute that has delayed their development, namely, cost.
If an individual could safely invest $2,000 today and knew it would be worth $20,000 within 3 years, most people would make the investment. If a well heeled investor knew that he or she could invest $2 million today and the investment would soon thereafter be worth $20 million, it wouldn’t take long for someone to make that investment. But, if it cost $2 billion and would later be worth $20 billion, the same cannot be said.
The number of investors capable of raising $2 billion for a project is vastly smaller than the number of investors who could raise $2 million. For this reason, until the economics are demonstrated via construction of the first High Speed Toll Tunnel, there will be skepticism over the projected ROI.
Impetus: Reduce Commute Times and Driver Stress
Why might toll tunnels work? Why might people desire to use them and pay tolls?
Much of the impetus to use Toll Tunnels derives from the time and stress people experience commuting to and from work on a daily basis. On average, people spend around 22 minutes commuting each way to and from work. Some people (16%) spend about an hour commuting each way, every day.
People who will use Toll Tunnels will preferentially be people with longer commutes. Fully 50% of people have a commute longer than 20 minutes. The average distance is around 25 miles. A desire to find a faster and easier method of transportation exists already today. What we lack is the first toll tunnel to prove the economics and justify opening the floodgates to their construction worldwide.
Net profits from toll tunnels will derive from two sources.
Net Profits From Toll Income
The first source of income and profit for toll tunnels is obviously the daily toll revenue.
Because electricity costs less than gasoline to power a vehicle, electric cars save about 20 cents per mile driven on a freeway. If electric vehicle owners pay the savings, their cost basis remains unchanged. But, they will get to commute at 120MPH instead of on stop and go surface freeways. Twenty cents per mile is a nominal toll charge expected for using the fast tunnels as it compares favorably with other toll roads and because it will generate a large net profit margin for the operators of toll tunnels in places with high traffic.
This image shows people queuing at the Oakland - San Francisco Bay bridge toll plaza paying a $7 toll to cross the 8.5 mile long bridge. This toll is $0.82 per mile making the 20 cents per mile proposed for toll tunnels a bargain.
The net profit from a 100 mile long, High Speed Toll Tunnel, should be in the range of $3 to $8 billion. This estimate is based on performing a net present value calculation of the anticipated yearly toll income from shifting ~5% of the vehicles using a surface freeway into the much faster tunnel system. Higher traffic means higher net profit for the toll tunnel operator.
The Chicago Skyway, for example, sold for $3 billion and yet it is just a 15 mile long freeway. The I-405 High Speed Toll Tunnel system, when built, will likely yield a $10 billion valuation on a $2 billion construction cost yielding a net profit around $8 billion for the tunnel operator.
There are at least 1,000 and perhaps as many as 10,000 similar routes worldwide. None of which have to date been won by a private sector enterprise. Once the private sector learns about and understands this opportunity, construction of new tunnels will follow.
Net Profits From New Vehicle Sales
The second source of net profit is surprising:
Auto manufacturers have an incentive to build High Speed Toll Tunnels as a marketing expense to increase the sales of their new electric, autonomous, vehicles. High Speed Tunnels will accelerate the transition to renewable energy by rapidly increasing zero emission vehicle sales.
The largest ROI created by High Speed Toll Tunnels will be the net profit vehicle manufacturers will earn by building and selling the vehicles capable of using these new tunnels. The net profit for vehicle sales is 2 to 4 times larger than the net present value profit the toll tunnel operators will enjoy.
For example, suppose a 100 mile tunnel is constructed along a congested route in a densely populated urban region of the United States. Approximately 1 million vehicles will be sold to citizens along the course of that 100 mile tunnel. Some of them will commute everyday. Others will use the tunnels once in a while for long trips. The profits from the sale of one million new cars will be approximately as follows.
The new vehicles will be electric and therefore will cost around $50,000 meaning the gross sales will be around $50 billion for the vehicles. The net profit margin for Tesla is around 20% so if Tesla sold all of these vehicles it would enjoy a $10 billion net profit on vehicle sales. But customers need to purchase the vehicle and also the full self driving software to safely navigate the tunnel system.
Today, Tesla has around a 10% sales take rate for its full self driving software. But for people buying a car to use the tunnel system daily, or even just once in a while, they will need to purchase the vehicle control software in addition to purchasing the vehicle itself. For people buying EVs to use the tunnel system the software sales take rate will be 100% because having the software is a requirement to use the tunnel system.
This addition to the vehicle cost will increase the net profit by around $10 billion to a total, vehicle plus software net profits, of around $20 billion. This profit is for one, single, tunnel. There are thousands of similar tunnels that will be built.
Companies could “Give” Tunnels Away For Free?
Aside from raising the money to build these tunnels, perhaps the most difficult aspect of building them is the process of getting permission to build them. The Boring Company left Los Angeles for Las Vegas because it could not win approval to build tunnels in the Los Angeles basin. This failure is certainly due to The Boring Company attempting to get a municipality to pay for the construction costs. However, there is another way to win approval.
Historically tunnels have been funded by the public through some municipality. If building a thing will generate a net profit on its own without public funding, then it becomes possible for the entity building the thing to give it away for free. Receiving payment for construction is of course nice, but winning the future profits is even nicer.
In order to encourage railroad companies to build railroads across the United States, the government granted ownership of 200 feet of land on either side of railroads they built. In this way the railroad company knew that they would own the land forever. The government also paid railroad companies a fee to help them cover the construction costs in order that railroad lines be constructed to open up the west to travel (much to the chagrin of Native Americans I should add).
In a similar way municipalities will soon grant ownership of a hole in the ground to tunnel operators in exchange for building a High Speed Toll Tunnel to eliminate congestion on local freeways.
Soon after the start of operations a well placed Toll Tunnel will have a net present value between $5 and $10 billion (per 100 miles length) based on recurring toll revenue. Higher traffic routes will have higher toll collections and thus a larger net present valuation. Higher adoption routes will also have higher toll collections and therefore valuations.
From the perspective of the municipality, they have a severe traffic congestion problem to solve. Historically, solving it means adding a lane to the freeway. Doing so is very expensive and often requires usurping private property, an unpopular requirement.
Today, a new option is possible, build a transportation tunnel. This requires the municipality to give ownership of a hole in the dirt to a tunnel operator. But the municipality already owns the hole in the dirt and is doing nothing with it, so, giving it away costs nothing.
What is less obvious is that the tunnel company could also build the entire tunnel system at zero cost to the municipality.
Suppose for example that Tesla were to offer to build a tunnel along a congested traffic corridor, for ”free”, in exchange for ownership of the tunnel and future toll revenue. Basically, Tesla would be offering the municipality a solution to it’s traffic problems for zero charge.
Tesla could make this offer knowing that it would profit around $20B - $2B = $18B for “giving” the tunnel construction cost away for free. And in the best locations, Tesla’s tunnel company, The Boring Company, would make an additional $8B for building and operating the tunnel. The net profits significantly exceed the tunnel construction cost.
It’s a win win scenario. Tesla and The Boring Company are given rights to a tunnel concession worth around $28 billion in total net profits, and, the municipality is given a new tunnel that eliminates traffic congestion on their surface freeway, saving them $90 billion cost for adding 1 lane in each direction along a 100 mile route.
Municipalities, in the near future, will be begging tunnel consortiums to build a tunnel in their city to solve their congested traffic problems because the tunnels will save them billions they would have spent to add lanes to their existing freeways. For the next 2 decades these tunnels will be built everywhere that traffic is a problem. Los Angeles will need over 1,000 miles of these tunnels to tame it’s traffic nightmares.
Why aren’t these tunnels being built yet?
No One Realizes The Race Has Already Begun
Today, the entire world suffers from traffic congestion along specific routes. This means that there are thousands of places where building a toll tunnel system will be profitable. Yet, in spite of the opportunity now being feasible, few people are aware of it.
The situation today is a bit like seeing a bunch of athletes milling around the start area for a race. Let’s pretend the athletes are analogues for the companies or individuals capable of building these tunnels. They are all waiting for their race to begin. Imagine that the starter fired the start pistol and the race has already begun, but, the racers don’t know it. So the racers continue milling around the start end of the race.
Whenever the first of them realizes that the race is underway he / she will take off down the track. As the rest of the athletes wake up and realize the race is on, they too will dart down the track as the rest of the pack enters the pursuit.
Industry hasn’t taken the results of The Boring Company and Tesla’s FSD (Full Self Driving) software seriously. Electric vehicles (zero emission vehicles) enable a reduction in tunneling cost by reducing the requirement for ventilation of toxic exhaust gases. FSD software enables vehicles to safely travel through small diameter (low cost) tunnels. The combination enables a tunnel operator to maintain a 90MPH tailwind throughout the 120MPH (193KPH) tunnel system and this doubles the range of electric vehicles in spite of the high land speed because the aerodynamic speed responsible for drag is just 30MPH. All together, these technological advances enable a completely new class of transportation system.
Once someone builds the first High Speed Toll Tunnel, the world will wake up to the new solution for heavy traffic. When this happens, a $30 trillion TAM will awaken. High Speed Toll Tunnels and the vehicles to navigate them will spring up like mushrooms in a warm spring rain.