Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Why Union Pacific’s Financials are bad News for Hyperloop?

The financial numbers of railroads like the Union Pacific (NYSE: UNP) show us that the Hyperloop might never make money.

The Union Pacific is one of the best run and largest US railroads, yet it does not make that much money. The UP reported a net income of just $7.278 million on revenues of $5.45 billion for 4th Quarter 2017. The UP also reported an operating income of $2.51 billion for 4th Quarter 2017 on December 31, 2017.

The UP is making more money, the net income was up from $1.194 million in September 2017, and revenues were slightly higher than the $5.408 billion reported in 3rd Quarter 2017. The sorry truth is that the Union Pacific is not making that much money.

Union Pacific is Making Less Money

The Union Pacific reported a free cash flow of just $973 million and an operating cash flow of $1.832 billion for fourth quarter 2017. The UP’s cash flow is falling off, its operating cash flow fell by -10.98% in fourth quarter 2017, up from -.15% in third quarter.

That cash flow generated cash and short-term investments of $1.365 billion and assets of total assets of $57.806 billion. Even though railroads have a reputation as a value investment they do not seem to generate that much cash.

The CSX Corporation (NYSE: CSX) which operates rail lines on the East Coast reported cash and short-term investments of just $419 million on assets of $35.739 billion on December 31, 2017. The CSX also reported an operating income of $902 million and a net income of just $4.140 million on the same day.

Why Hyperloop will need Your Tax Money

The financials for railroads like UP and the CSX; which operates historic rail lines on the East Coast, show us why Hyperloop will need your tax dollars. Privately-owned surface transportation companies simply do not generate enough cash to pay for expensive infrastructure like the Hyperloop.

Even though we have little data about Hyperloop, all indications are that it will be incredibly costly. The most expensive Hyperloop systems will be the buried ones like the Baltimore to Washington D.C. subway that Elon Musk wants to build on the East Coast.

Musk wants to dig a 35-mile tunnel under the Baltimore-Washington Parkway (I-315). Since typical subway tunnels cost around $100 million a mile that project would cost a minimum of $3.5 billion. Only government would be able to provide the kind of cash needed for that project either through bonding or taxes.

No, Private Industry cannot afford to build the Hyperloop

No investor is going to put up the money needed for Hyperloop because the technology is completely unproven. Yes, it is technically feasible, but nobody knows if Hyperloop s financially feasible.

Nobody knows how much Hyperloop would cost to build, maintain or operate. Nor does anybody know how much money Hyperloop would make by hauling freight or passengers.

The Baltimore-Washington Line Hyperloop Musk is proposing, is simply too short profitability haul freight. It would move a lot of passengers, but Musk would have to keep fares low, probably under $20 to be competitive with automobiles.

Other Hyperloop lines such as that between Columbus, Ohio, and Chicago, are equally unproven. Although there might be more demand for freight service on that route. Note a smarter route would be one connecting Columbus and Chicago to a port such as Baltimore. That would connect factories and farms in the Midwest with a port used to export products.

Even such a Hyperloop line will require a lot of tax money, probably from Uncle Sam. No matter, how or where we build it the Hyperloop is going to need a lot of support from taxpayers and government. That simple fact might doom this transportation system to the status of being nothing but a historical curiosity.