A Struggling Spanish Town Pins Hopes on Elon Musk’s Hyperloop

(Bloomberg) -- El Puerto de Santa Maria lives mainly from booze, beaches and benefits.

With a 27 percent unemployment rate, among the highest in mainland Spain, and more than 14,000 retirees in a population of 88,000, the southern port town struggled to create jobs beyond tourism and the local wineries even before the economic crisis that rocked the country during the early years of this decade.

But Mayor David de la Encina has a plan to turn around the town's fortunes. And it might surprise some of the locals.

De la Encina is promoting a group of investors who want to turn El Puerto into a high-tech manufacturing center producing supersonic capsules for the Hyperloop, a futuristic transport technology that so far exists mainly in the power-point presentations of start-ups in London and San Francisco.

Dreamed up by Tesla Inc. billionaire Elon Musk and first proposed in 2013, a Hyperloop would fire passengers through giant tubes at more than 1,200 kilometers (750 miles) an hour. According to Musk's calculations, it could whisk people from San Francisco to Los Angeles in 35 minutes and cost just $6 billion to build.

De la Encina says the initiative can help his town recapture its glory days of 500 years ago when it was at the center of the global economy during Spain's conquest of the Americas.

“It's hard to understand why a region full of resources like ours is struggling so much,'' Encina said in an interview at his office in City Hall. “Projects such as Hyperloop can help El Puerto to be a spearhead of innovation as it was centuries ago."

Los Angeles, Dubai... Cadiz

The plan is starting to take shape out at a regular concrete and steel industrial unit on the outskirts of the town, where the traditional white and ochre housing gives way to olive groves and vineyards more typical of the Andalusia region.

It's here that Los Angeles-based start-up Hyperloop Transportation Technologies Inc. plans to build the first full-scale prototype of its 30 meter-long vehicle.

HTT is collaborating with more than 40 companies and more than 800 people in 42 countries to develop its technology. In El Puerto, HTT is partnering with Airtificial, a firm spun out from the chemistry department at the University of Cadiz, the provincial capital just across the bay.

The company is hoping to start its first commercial service on the border between Dubai and Abu Dhabi in time for the Expo festival Dubai will host in 2020. That line, 10 kilometers long, will be a turning point for HTT, said Chief Executive Officer Dirk Ahlborn in an interview.

“HTT is already generating revenue, and hopefully it is going to be profitable with our commercial system up,” he said in an interview in El Puerto last month, where he was unveiling the Airtificial manufacturing plant alongside Susana Diaz, Andalusia's regional president.

Low-Risk Option

For HTT, the project in El Puerto is something of a low-risk option.

Under HTT's crowdsourcing business model, Airtificial will fund the entire cost of building the capsule in exchange for stock options.

Airtificial, which had 80 million euros of revenue in 2017 and hasn't made a profit for six years, has invested 25 million euros in the facilities where the capsule will be built. The project includes no public subsidies, a company press officer said.

Hyperloop projects are all the rage in Andalusia -- Billionaire Richard Branson's Virgin Hyperloop One, a direct competitor to HTT, plans to open a research center in 2020 in Malaga, 200 kilometers along the coast.

HTT plans to license its technology to operating companies and investments coming from the both public institutions and private funds. The company also hopes to build an initial 10-kilometer track in China's Guizhou province. The local government will provide half of the investment and HTT is seeking investors for the rest.

In El Puerto, the Hyperloop project has so far done little to disturb the familiar rhythms of life in Cadiz province. On the day it was announced, local businesses were focused on earning a living the way they have for years -- serving the pensioners filling café tables around the downtown food market -- and the prospect of a revolution in public transport seemed to pass them by.

“Airtificial is an interesting project and Hyperloop is something positive for the region, but it's not magic,” Juan Carlos Martinez, a professor of economics at IE Business School in Madrid, said in a phone interview. "It won't turn Cadiz into a new Silicon Valley."

--With assistance from Sarah McBride.

To contact the reporter on this story: Thomas Gualtieri in Madrid at tgualtieri@bloomberg.net

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net, Ben Sills, Charles Penty

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