The path to a mega fleet of autonomous vehicles for Tesla could lie with Elon Musk's Boring Company, according to Morgan Stanley's Adam Jonas. The infrastructure start-up promises to build a network of underground motorways. The investment bank reviewed The Boring Company, and how it will relate to Tesla, in a Friday note after the tunnel mining start-up announced a $5.7 billion valuation earlier this week on April 20. The Boring Company disclosed it raised $675 million in a Series C funding round. The valuation prompted Jonas to highlight the opportunities ahead for The Boring Company, which he said is "inextricably linked" to Tesla's potential as an autonomous fleet operator. Musk repeated in an earnings call Wednesday that Tesla is developing a robotaxi without pedals or steering wheel that analysts believe will benefit most in a "controlled environment." "We believe TSLA's first L5 vehicle may be in a geo-fenced tunnel. While the number of vehicles may not be that material in the early stages, we believe the proof-of-concept for Tesla as a megacity/fleet operator is at play here," wrote Jonas. A Level 5 autonomous vehicle can operate on all road conditions, according to mobility standards from SAE International. He added, "We think AV deployment in tunnels, even including the challenges inherent in creating and maintaining safe subterranean infrastructure (and there are many) may be easier to achieve than deploying AVs on surface roads in dense urban areas at scale. As such, we see tunnels and autonomy are inextricable linked." The analyst seemed aware that the viewpoint could be hard for clients to take at face value, given the difficulties quantifying a "potentially disruptive but loosely defined" tunnel mining industry, the note read. "We understand there is plenty of room to for investors to be skeptical here so please reach out to us for more details," Jonas wrote. Still, the investment bank urged investors to watch carefully for any milestones from Musk's Boring Company. The start-up could be a leader in a nascent tunnel industry that could blossom into a $20 billion total addressable market by 2050, according to estimates from Morgan Stanley. "The 'Muskonomy' is starting to bloom," Jonas wrote. "With Tesla around a $1Tn market capitalization and SpaceX valued at approximately $100Bn, we believe Musk has the proven 'touch' when it comes to solving problems and building successful companies in the transportation space." The Boring proposition The Boring Company aims to tackle traffic congestion by mining tunnels underground faster and cheaper than has been done in the past. While a traditional tunnel can cost up to $1 billion per mile, a tunnel mined by Boring could cut that cost down to roughly $10 million per mile, the note said. That assurance is built on the firm's tunnel boring machine called Prufrock, which drills by "porpoising" down and surfacing elsewhere. The most recent design of Prufrock is expected to mine 7 miles per day, versus the current model that can mine 1 mile a week. The current model can still bore underground at a faster rate than traditional tunnel drilling machines. Other interests recently announced underground highway developments. Last year, Saudi Arabia announced it will build a futuristic city with "zero streets" by developing an AI-powered underground operation that will transport commuters. "Teslas in Tunnels" A majority of developments, or talks of developments, are in states where Musk's other businesses are already situated, such as California or Nevada, analysts noted. Some passengers may be most familiar with Loop, the public transportation pathway developed by Boring that transports passengers at high speeds in Tesla vehicles through its tunnels. The company offers development of other kinds of underground pathways for freight transport, pedestrian transport and others. In October, an underground highway was approved in Nevada by local government regulators, the note said. About 29 miles and 51 stations are expected to be developed under the Las Vegas Strip that could be serviced by a fleet of Tesla vehicles, the note said. However, an initial tunneling venture built in the Las Vegas Convention Center Loop was criticized for its lack of pedestrian entrances, walkways, and for the $50 million cost to Nevada taxpayers. Musk's Boring Company has done business with Tesla before , purchasing "Tesla Energy systems and related services" for a total of $300,000 during 2020. Risks ahead To be sure, there are plenty of risks ahead for the tunnel boring company. Regulatory risk, hurdles in technological advancement and concerns around consumer safety could also slow the company's progress. The company will also need to raise substantial amounts of money for expensive infrastructure projects. Still, analysts believe vertical highways will be a need in the future. Jonas wrote, "While sea-changes in infrastructure may take many years to play out, we would pay close attention to the next stages of The Boring Company."
Elon Musk waves after speaking at a Boring Company community meeting in Bel Air, Los Angeles, California, May 17, 2018.
Lucy Nicholson | Reuters
The path to a mega fleet of autonomous vehicles for Tesla could lie with Elon Musk's Boring Company, according to Morgan Stanley's Adam Jonas. The infrastructure start-up promises to build a network of underground motorways.