Spacex And Categorical Commitment To Low Launch Costs
SpaceX is the fastest growing space company in the world. It has had great success since its inception in 2002, and its technical efficiency has made the company a reference in the Newspace community and a role model for countless startups in the industry.
Launch industry officials have viewed SpaceX first with skepticism, then with distrust, and now with respect as they watch the company evolve its business model. First, Elon Musk's criticism that access to space was too expensive.
Today, all observers agree that SpaceX has achieved significant savings in orbital launches with its partially reusable Falcon launch system.
The same observer also points out that SpaceX's customers overall still do not significantly benefit from the reduced cost of space access, because SpaceX has no incentive to pass the savings on to its customers, or only very marginally if they do. .
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We believe that the benefits of the SpaceX launch are irrevocably tied to the success of SpaceX as much as they form the basis for the seemingly unstoppable development of Starlink.
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Business of SpaceX
SpaceX is a company with four main divisions:
Space Launch. SpaceX serves three market segments. Starlink launches (80% of total), US government launches (NASA and DoD), and commercial and export launches (SES, OneWeb, ESA). This startup is usually presented as very profitable, because SpaceX lowers its costs thanks to its reusable technology and is able to make a gross margin on each launch for foreign customers (while Starlink launches benefit from cost without profit). SpaceX's launch business is widely expected to generate about $3.5 billion in revenue in 2024 (including Dragon cargo and crew missions), with about 20 to 25 launches per year.
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Broadband service. Through the Starlink constellation of 6,000 satellites, SpaceX can provide global broadband to fixed and mobile terminals around the world. It is currently the largest provider of such services in the United States, with at least 3 million subscribers. This business is expected to generate approximately $4.5 billion in 2024 (of which 80% comes from service revenue, the rest from end sales), although estimates vary. It was recently reported that Starlink achieved "significant cash flow" in the first quarter of 2023, and SpaceX achieved profitability in 2023. Analysts generally understand that in order to break even on cash flow and make Starlink profitable, SpaceX must achieve a very low working capital for Starlink, so low in fact that the only reasonable assumption is that each Starlink launch will cost less than $50 million (including satellites). . and launch), which in turn leads to the assumption that the cost charged to Starlink for the Falcon 9 must be less than $28 million per launch, given Elon Musk's claims that Starlink satellites cost on the order of $1,000 per kilogram . face value that means about $17-18 million Starlink satellites with each Falcon 9 launch. In fact, any assumption greater than $50 million per launch would be inconsistent with the 2023 revenue and cash flow statements.
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Satellite reporter : Whether it's the space agency's Warfighter Space Architecture distributed transport layer or the recently announced Starshield constellation, SpaceX delivers satellites to US government constellations. The actual revenue associated with these projects is unknown, but considering the high value of the Starshield contract, it is reasonable to assume that these projects could generate $500 million and more in 2023 and 2024.
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HLS program : SpaceX also participates in NASA's Artemis program as a supplier of the Human Landing System (HLS) to land American astronauts on the Moon. It was a $2.9 billion deal, plus another $1.15 billion deal. Payments for these contracts are tied to milestones, most of which appear to be tied to Starship achievements. SpaceX has probably already made a lot of money from these contracts, maybe $700-$800 million a year.
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SpaceX Financial Modeling
At Eurospace, we created our SpaceX Financial Model as a tool to understand the intertwining dynamics of SpaceX's revenues and costs, taking into account a number of cost and capital expenditure assumptions.
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One of these assumptions concerns the actual cost of launching Falcon 9, whose unique features of reusability, increased reuse frequency (more than 20 flights per reuser), seal recovery and reuse, and acceleration of launch frequency (supported by rapid decreasing revision). times) to mechanically reduce average launch costs.
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In 2021, Eurospace modeled the economics of the Falcon 9 and concluded that the reusable model would generate large and growing returns to scale (paid by foreign customers) after the seventh launch of the year.
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In 2024, the reusable model will be significantly improved, and many analysts believe that the total cost of each Falcon 9 launch - including transportation, renovation, assembly and operational work, wear and tear of facilities (launch sites, factories, test platforms) and reusable products (shields and amplifiers)—currently worth less than $30 million. While some analysts make indirect assumptions that the total cost of the Falcon 9 could be as low as $20 million per launch, Eurospace prefers to stick with the more conservative assumption of $28 million per launch.
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The Inevitable Falcon Low Launch Cost Thesis
It is interesting to note that the Falcon launch cost assumptions are the most important factor in SpaceX's economic analysis and the cornerstone of achieving profitability through the Starlink service.
In fact, when modeling Starlink's economics with various (favorable and unfavorable) Capex and Opex assumptions, it appears that Starlink's largest cost is Space Infrastructure Capex and associated Amortization (DandA).
In Eurospace's model, the assumptions leading to Starlink's profitability in 2023 are closely tied to the assumption that Starlink Capex will be less than $50 million per launch (including satellites), meaning that the total cost of Falcon 9 launch will be lower. . than $30 million. . For example, if Starlink Capex were only $60 million per launch, the total cost would be $24 billion by the end of 2024. Such a Capex would mean unsustainable DandA and a very negative operating profit for the Starlink system alone. If that were the case, SpaceX would probably have to raise more equity or debt to close the funding gap. This counterintuitive reasoning is the strongest indication that SpaceX has indeed achieved capital efficiency for its Starlink system that commercial constellations have never achieved, and 70 percent of that capital efficiency depends on the low cost of Falcon 9 launches that SpaceX requires from Starlink. .
The consequence of this assumption is that when the Falcon is marketed to external customers, including the U.S. government and commercial or export customers, it is priced much higher than the actual cost, resulting in a significant net profit of up to $30. . a million or more. low cost commercial launch and up to $50-60 million (and more?) for a government agency. In 2023, SpaceX has conducted 33 launches for foreign customers, likely generating more than $1 billion in gross profit.
Interestingly, this thesis also relates to SpaceX's profitability, as launch revenue supports the Starlink system, covering perhaps 40-50 Starlink launches (costs not including satellites).
Finally, maintaining Starlink's cost-effectiveness or profitability requires a thesis costing less than $30 million per issue. It is also the only thesis where this story can be continued: if the Falcon 9 is more expensive than that, there is no realistic expectation that the financial model of SpaceX will not go bankrupt. Or, to put it another way, if the total cost of the Falcon 9 significantly exceeds $ 20-30 million, then either SpaceX will be in debt or SpaceX has or had or had much higher revenues than currently projected.
Cheap access to space, a catalyst for new space and a competitive advantage that SpaceX does not want to lose
As many commentators regularly point out, SpaceX has been able to significantly reduce the cost of access to space, but it does not pass those savings on to its customers. Given the stiff competition (mainly Arianespace and ULA), SpaceX really has no incentive to offer lower prices.
In a recent article, some of SpaceX's competitors expressed concern that SpaceX may be underselling costs to keep them down, suggesting that this is unfair. The fact that these competitors, especially Rocket Lab, have much higher list prices per kilogram than SpaceX (over $20,000/kg for Rocket Lab, less than $6,000/kg for SpaceX) and still do not make a profit (as seen in Rocket's the latest financial report of the laboratory). statements) give them a strange resonance to their sayings. Is it possible, as they suggest, that SpaceX is selling the launches at a loss to keep the competition at bay? If this were true, and given the extremely high frequency of Starlink launches, it would mean that SpaceX would be drowning in debt and unable to support a Falcons launch for more than $45-60 million.
Of course, since SpaceX is private, no one can prove or disprove that SpaceX makes huge profits from its Falcon launch business. But as we discussed above, assuming that the total cost to launch the Falcon 9 is significantly greater than $30 million, the incredible launch rate that the Starlink deployment brings will not hold. Assuming that each Falcon 9 actually costs SpaceX "as little" as $50 million, that means SpaceX will end up spending $10 billion and more on Starlink launches alone (plus probably $6-8 billion for satellites). From 2024 onwards. We believe this figure is inconsistent with other financial facts about SpaceX and does not support the claim that Starlink was profitable in cash and would not have been profitable sometime in 2023.
The most likely and logical assumption is that SpaceX opened a new economic model for space launch, achieving reusability, fast cycling and especially a very high cadence (thanks to the huge "demand" created by Starlink). It also means that SpaceX clearly has the margins to undercut the competition while winning every launch (including the Transporter and Bandwagon missions and their relatively low occupancy).
SpaceX's Competitive Advantage at Launch: Fair Play or Overrated?
Another interesting implication of this assumption is that as long as SpaceX is the only launch operator benefiting from low launch capacity in its constellation business, it will always have better financial prospects than its competitor.
Now that Kuiper has recently negotiated a number of launches with SpaceX and may buy more in the future, the issue of fair pricing may be worth raising.
Falcon's extremely low launch cost may also raise questions among US government customers. NASA and DoD regularly pay very expensive launch bills for Falcon launches. Considering how much SpaceX's successful development path involves NASA and other US government companies, it might make sense for those customers to start asking if they're getting value for money and consider reviewing SpaceX to see if the company's offerings are . Is SpaceX honest or does it contain too many entries.
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We are very curious to see how this will ultimately play out, because proponents and proponents of new space, including Elon Musk, are very hard to talk about a dramatic drop in start-up costs as the key to "unlocking new space." space." economy," without ever seeing those savings passed on to customers, ultimately unlocking the benefits that "affordable access to space" should bring to humanity.
Pierre Lionnet is the Research and Executive Director of Eurospace, the European space industry trade association). He calls himself a space economist, an economist by education, and has spent the past 30 years professionally analyzing space markets, space industry supply chains, and trends in space technology and innovation. This opinion reflects his own views and does not represent the official position of the Eurozone..
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