The Closest I’ve Ever Been to Changing the World (5) — Crazy Margin

Continuing from the last post, I asked him what their actual returns, timelines, and numbers look like.

He said, “Let me give you an example. Let’s talk about our two most advanced projects. We’re transmitting 5 gigawatts of electricity from West Texas to San Antonio and Austin. Once the permit is obtained, and all the contracts are in place — meaning once the construction permit and contracts are secured, and the client is locked in — and that client must be investment grade, like a data center or a big tech firm — then we can get non-dilutive project financing from major banks, just like construction loans in real estate development. We use debt to complete the entire project.”

He said that in their industry, there are many lenders — including Bank of America, Morgan Stanley, and even Kuwait’s sovereign wealth fund, among others they are working with — all very active in this space.

I said, “So you’re basically exactly like a real estate developer. You get the construction permit, the substation is ready, contracts are signed, and then you borrow a construction loan to start building. It’s exactly the same logic.”

He said, “Exactly — it’s the same playbook, just with lower input and higher returns. There’s plenty of capital out there now, but very few developers who can and are still willing to do power infrastructure projects. So the money is actually chasing power developers. As long as you have all the project elements ready — permits, rights of way, buyers, tenants — getting construction financing from banks is very straightforward. It’s like building houses on the surface, but we have lower cost, higher returns, and shorter terms. For example, I have estimated that our most advanced project we are working on right now will bring about 30 million USD per month in revenue.”

I said, “Wait — did I mishear you, or did you misspeak? 3 million or 30 million?”

He said, “30M per month, not 3M. The payback period is around 2.5 years — roughly 40% to 50% annualized return. It takes about two and a half years to break even, and after that, it’s pure profit — just like a toll road that can collect fees for over a hundred years.”

I said, “That sounds like money printing to me. But isn’t tunneling a capital-intensive business? How do you break even in just two and a half years?”

He said, “When I first did the financial projections, I also thought it sounded a bit unbelievable, but the numbers really are like this. Each tunnel only requires two robots to dig. Each robot costs about 2.5 to 3 million USD. Add in permits, engineering, and miscellaneous costs — that’s about another 1 to 1.5 million. The Opex is mostly electricity, which we can get for cheap from the solar & wind developers who are desperate to get their projects built and get their power to the market without waiting 7 to 15 years for some utility to build a new transmission line above ground. So two robots plus all costs — roughly 7 million USD to start construction. And these robots aren’t disposable — they can be reused again and again for future tunnels. The more projects we do, the lower the fixed cost is. Worst-case scenario, one project’s upfront cost is around 7 million, and it generates 20 to 30 million in monthly revenue. Once shovel-ready, most of the money comes from the bank — basically project financing. So look — if annual revenue is roughly 240 million, and the construction loan is around 600–700 million, it takes about 2.5 years to break even. After that, it’s all pure profit. The margins are high — annual net profit easily exceeds 100 million USD.”

I summarized: “So each project takes about two and a half years to break even, with roughly 50% annual return?”

He said, “Yes, that’s what our calculations show.”

I confirmed again: “So for each project, you estimate 20–30M USD monthly revenue, 240–360M annually, and total project cost around 700–800M, breaking even in about 2.5 years?”

He said, “Roughly. For our current project, we first spend about 7M upfront, then take an 800M construction loan, and we’re making about 400M a year from it — one tunnel, 400 million USD revenue annually 😂.”

I said, “So do you already have revenue now? What does current income look like?”

To be continued next time!