SpaceX and the categorical imperative to achieve low launch cost

SpaceX is the fastest growing space company worldwide. It has achieved major successes since its creation in 2002, and its level of technical execution has established the company as a benchmark for the newspace community and as a model to follow for countless start-ups in the sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Incumbent players in the launch sector have been looking at SpaceX, first with skepticism, then incredulity, and now with awe, witnessing the company unfolding its business model, initially sparked by Elon Musk’s criticism that access to space was too expensive.

Today it is generally recognized by all observers that SpaceX, with its partially reusable Falcon launch system, has achieved major cost reduction for orbital launch.

The same observer also notes that the customers of SpaceX, as a whole, are not yet benefiting from any significant reduction of the cost of access to space, because SpaceX is not incentivized to pass the economies they achieve to their customers, or only very marginally, if they do.

We believe that the economies achieved by SpaceX on launch are irrevocably tied to the success of SpaceX, to the point that they provide the foundation of Starlink’s seemingly unstoppable development.

The business of SpaceX
SpaceX is a company that has four main lines of business:

Space launch. SpaceX serves three market segments. Starlink launches (80% of the total), United States government launches (NASA and DoD) and commercial and export launches (SES, OneWeb, ESA). This launch business is usually presented as being extremely profitable because SpaceX, thanks to its reusability technology, is driving down its costs and is able to generate gross margins on every launch performed for external customers (while Starlink launches benefit from at-cost pricing with no profit made). It is generally assumed that SpaceX launch business yields about $3.5 billion in revenues in 2024 (inclusive of Dragon cargo and crew missions), with about 20 to 25 launches per year.

Broadband service. Through its 6,000 satellite Starlink constellation, SpaceX is able to deliver global broadband access to fixed and mobile terminals around the globe. It is currently the largest provider of such service in the U.S., with a subscriber base of 3 million or more. This business is assumed to yield about $4.5 billion in 2024 (80% of this is service revenue, the rest is composed of terminal sales), though estimates vary. It was recently announced that in Q1 of 2023, Starlink achieved ”breakeven cash flow”, and that SpaceX turned a profit in 2023. Analysts usually recognize that to achieve breakeven cash flow, and turn a profit on Starlink, SpaceX must achieve a very low Capex on Starlink, so low in fact, that the only viable assumption is that each Starlink launch costs less than $50 million (satellites and launch included), which in turn leads to the assumption that Falcon 9 costs charged to Starlink must be lower than $28 million per launch, if we take at face value Elon Musk’s statements that the cost of Starlink satellites is in the order of $1,000 per kg, or about $17 to 18 million worth of Starlink satellites on each Falcon 9 launch. In fact, any assumption above the $50 million per launch would be incompatible with the statements about profit and cash flow in 2023.

Satellite supplier. SpaceX is a supplier of satellites for U.S. government constellations, be it the the Space Development Agency’s Proliferated Warfighter Space Architecture transport layer, or the recently disclosed Starshield constellation. 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 may yield $500 million and upwards in 2023 and 2024.

HLS program. SpaceX is also involved in the NASA Artemis program as a supplier of the HLS (Human Landing System) to land US astronauts on the moon. This was a $2.9 billion contract, further topped by a second $1.15 billion contract. Payments for these contracts are linked to milestones, most of them seemingly tied to Starship achievements. It is likely that SpaceX already recognized large revenues from these contracts, maybe $700 million to $800 million a year.

Modeling SpaceX financials
At Eurospace, we have designed our own SpaceX financial model as a tool to understand the intertwined dynamics of SpaceX revenues and expenditures, with a variety of underlying assumptions regarding costs and capex.

One of these assumptions considers the actual costs of Falcon 9 launches, whose unique features of reusability, growing booster reuse rate (over 20 flights per booster), fairings recovery and reuse and acceleration of launch cadence (supported by rapidly decreasing refurbish times) mechanically drive average launch costs down.

In 2021, Eurospace had modeled Falcon 9 financial assumptions and came to the conclusion that the reusability model generates large, and growing profits, at scale, after the seventh launch of the year (paid for by external customers).

In 2024, the reusability model is vastly improved, and many analysts believe that the possibility that the full cost of each Falcon 9 launch —– including workforce for transport, refurbishment, assembly and operations, depreciation and amortization on facilities (launch sites, factories, test benches) and reusable items (fairings and boosters) — is currently positioned below $30 million. While some analysts make implicit assumptions that the full cost of Falcon 9 could be as low as $20 million per launch, Eurospace prefers to stay with the more conservative assumption of $28 million per launch. kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl kjl

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