Elon Musk's Las Vegas Loop: Financial Troubles

Regulatory Hurdles Impacting The Boring Company's LVCC Loop

Constraints imposed by Nevada’s regulatory bodies are presenting challenges for The Boring Company (TBC) in fulfilling the contractual obligations associated with its LVCC Loop project – Elon Musk’s inaugural underground transportation network.

System Capacity and Regulatory Restrictions

The Loop system, situated at the Las Vegas Convention Center (LVCC), was designed to utilize over 60 fully autonomous, high-velocity vehicles to facilitate the transport of 4,400 passengers hourly between exhibition spaces. However, reports indicate that Clark County regulators have currently authorized only 11 vehicles operated by human drivers.

Furthermore, strict speed limitations have been implemented, and the deployment of Tesla’s “full self-driving” Autopilot advanced driver-assistance system – including its collision-avoidance features – has been prohibited. It’s important to note that Tesla’s Autopilot, despite its branding, is technically classified as an advanced driver-assistance system, automating certain driving functions rather than achieving full autonomy, as acknowledged in internal discussions between Tesla and California regulators.

Contractual Agreements and Payment Milestones

The Las Vegas Convention and Visitor’s Authority (LVCVA), the governing body of the LVCC, established a contract with the intention of incentivizing Musk and ensuring the project’s commitments are met.

This contract operates on a fixed-price basis, with TBC receiving payments upon achieving specific milestones. These include completion of the tunnel infrastructure, a fully functional system, a successful test period and safety assessment, and ultimately, demonstrating passenger transport capabilities.

Specifically, capacity-based payments are structured as follows: $4.4 million for transporting 2,200 passengers per hour, an additional $4.4 million for 3,300, and a further $4.4 million for reaching the target of 4,400 passengers per hour. These capacity-related payments collectively constitute 30% of the total fixed-price contract.

Potential Penalties and Financial Implications

Due to the current restrictions, the Loop’s operational capacity may be limited to under 1,000 passengers per hour, potentially exposing TBC to substantial penalties for failing to meet its contractual targets. It is noteworthy that TBC does not generate revenue through passenger fares; the rides are provided free of charge.

Update: Following the initial publication of this report, Steve Hill, President of the LVCVA, announced via Twitter that a recent Loop test involving several hundred participants successfully demonstrated the planned capacity of 4,400 passengers per hour. This outcome may facilitate the release of additional construction funds.

However, TBC must consistently achieve this capacity during actual conferences in the coming months to avoid incurring penalties. TechCrunch proactively shared its findings with the LVCVA, Clark County, and TBC over several weeks prior to publication. Only the LVCVA provided a detailed response, but did not address questions regarding capacity or considerations for passengers with disabilities or children.

Under the terms of a management agreement, the LVCC will compensate TBC with $30,000 per day for operating and managing the system during large events like CES. However, the original 2019 contract stipulates a $300,000 penalty for each major convention where TBC fails to transport approximately 4,000 people per hour.

Consequently, over a three- or four-day event, TBC could face losses amounting to hundreds of thousands of dollars, in addition to the operational costs. Prior to the pandemic, the LVCC typically hosted around a dozen such large-scale events annually. The possibility of TBC exploring alternative revenue streams, such as advertising within the vehicles, remains unclear.

Withheld Funding and Ongoing Costs

This capacity shortfall is already impacting TBC financially. The contract stipulates that if performance targets are missed by a significant margin, Musk’s company will not receive over $13 million of its construction budget.

The convention center authority has confirmed to TechCrunch that this construction fee is being withheld until TBC can demonstrate its ability to transport thousands of passengers per hour. Smaller events, approximately 20 per year, carry no capacity penalties but generate a smaller daily fee of $11,500 for TBC.

TBC also receives a consistent monthly payment of $167,000 to maintain system operations, irrespective of convention activity.

A recent capacity test involved only 300 participants; however, a Convention Center official expressed confidence that the 4,400 passengers-per-hour target is “well within our sights.”

Operational Requirements and Future Renegotiations

In addition to its team of human drivers, TBC is responsible for staffing an operations center, a maintenance and charging facility, and providing uniformed customer service personnel, security staff, and a full-time resident manager, as outlined in the management agreement.

The fee structure is scheduled for renegotiation – likely downward – by the end of 2021, to reflect the anticipated transition to autonomous vehicle operations.

Image Credits: Ethan Miller / Getty Images

Operational Limitations for the Loop System

Initial operation of the Loop faced certain constraints imposed by the Clark County Department of Building and Fire Prevention. These stipulations reportedly encompass a maximum speed of 40 mph across the entire system, reduced to 10 mph when entering or exiting each of the Loop’s three stations. Furthermore, operation is currently limited to a fleet of only 11 vehicles.

According to Deputy Fire Chief Warren Whitney of the Clark County Fire Department, The Boring Company (TBC) indicated that Tesla’s collision warning systems were not authorized for use within the Loop infrastructure. A transportation system certificate recently issued by Clark County explicitly requires the use of “non-autonomous” and “manually driven” vehicles, and was granted for a planned fleet of 62 vehicles. Neither county officials nor TBC responded to detailed inquiries regarding these operational restrictions, or a potential timeline for their modification.

Prior warnings from Toyota have highlighted potential malfunctions of radar-based collision warning systems when operating inside tunnel environments.

The capacity for safe and “fully autonomous operation” of the Teslas without their collision-warning radar remains unclear. However, Elon Musk had previously proposed – and has now implemented – the removal of radar sensors from vehicles, relying solely on camera technology. Tesla began delivering Model 3 and Model Y vehicles without radar sensors in May. This change resulted in the National Highway Traffic and Safety Administration (NHTSA) removing its automatic emergency braking, forward collision warning, lane departure warning, and dynamic brake support check marks for models produced on or after April 27, 2021.

Consumer Reports subsequently removed the Model 3 from its Top Pick list, and the Insurance Institute for Highway Safety (IIHS) announced plans to revoke the Model 3’s Top Safety Pick+ designation.

Emergency Response Concerns

The Fire Department also expressed concerns regarding emergency scenarios within the tunnels, specifically the potential for prolonged battery fires. “Instances of electric vehicle fires occurring without any preceding accident have been documented,” Whitney explained to TechCrunch. “Our current strategy prioritizes passenger evacuation, followed by a controlled burn of the fire.”

Whitney emphasized the system’s extensive array of cameras, smoke detectors, and a “robust” ventilation system capable of circulating 400,000 cubic feet of air per minute in either direction throughout the tunnels. This infrastructure is designed to facilitate passenger and driver evacuation on foot, even amidst stationary vehicles. TBC also maintains a Tesla tow vehicle for the removal of disabled cars.

Responses to TechCrunch’s inquiries regarding the Loop’s ability to accommodate wheelchair users, children or infants requiring car seats, individuals with mobility impairments, or pets and service animals were not provided by either TBC or Clark County.

Firefighters have already conducted numerous drills within the underground system, simulating accidents occurring at a distance from stations and involving multiple vehicles. “Operating with eleven cars presents a manageable scenario,” Whitney stated. “However, increasing the number of vehicles could introduce challenges. As TBC seeks to maximize efficiency and increase capacity, further discussions are anticipated.”

Future Growth and Expansion

The Boring Company (TBC) isn't simply focused on increasing vehicle numbers within the current Loop system; proactive expansion plans are already underway.

As of late March, TBC communicated to Clark County officials that construction had commenced on a Loop extension. This extension will connect the existing Las Vegas Convention Center (LVCC) station to the newly established Resorts World hotel.

Furthermore, TBC possesses the necessary approvals to construct a comparable spur line extending to the Encore hotel, situated in close proximity.

A more ambitious undertaking is also being considered by TBC.

This involves the development of a comprehensive transit network encompassing a significant portion of the Las Vegas Strip and downtown areas.

The proposed system would feature over 40 stations, strategically linking numerous hotels, entertainment venues, and, eventually, McCarran International Airport.

Financing for this extensive project would be provided entirely by TBC, with revenue generated through passenger fares.

The success of these expansion endeavors is contingent upon TBC's ability to deliver on the technological and operational commitments made regarding the initial, less complex LVCC Loop.

Demonstrating the revenue-generating potential of tunnel-based transportation, beyond the considerable media attention it has received, will also be crucial.