As side hustles go, Elon Musk's rocket company SpaceX is really quite something entirely separate from the humdrum day job at Tesla where his only real challenge is weaning humanity off the internal combustion engine. Musk's multi-billion SpaceX operation sets itself no lesser target than bringing down the cost of space travel and ultimately helping mankind colonize Mars *spoiler alert*
Firing gigantic rockets into space every other week is not a cheap undertaking and while there's no question, Elon Musk has a few bucks to his name; his pockets aren't bottomless somehow all those dazzling launches and landings need to pay for themselves. So strap in and get ready for ignition sequence while we investigate today's burning question.
How does SpaceX make money?
In October of 2020, influential investment bank Morgan Stanley went on record saying it believed SpaceX would very soon be worth a cool 100 billion dollars which is all very exciting until you start to think about the maths behind that figure because as awesome as space travel is, it's a high risk endeavour requiring hundreds of millions of dollars in hardware and expensive labor just to get started and even if you make it to orbit it's not as if there's a long line of paying punters out there in the frozen wastes of the solar system to help you recoup your costs. That's why historically the financial heavy lifting in space has fallen on governments so why is it suddenly so commercially viable?
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SpaceX currently makes the majority of its money serving earth-based customers who need to put stuff into low earth orbit that's unlikely to be you personally or anybody you know for that matter but for communications companies, Musk's ability to deposit their hardware up into orbit more cheaply than the competition makes all the difference. But cheaply of course we mean still many tens of millions of dollars. The going rate for launching a satellite on one of SpaceX's tried and tested Falcon 9 rockets is 62 million. SpaceX doesn't reveal the ins and outs of its company finances but it's believed launching a newly built Falcon 9 costs the company something like 50 million dollars. So from a single launch, it's fair to assume a working profit margin per launch of around 12 million dollars. Not bad when you consider the company is scheduled to complete 21 flights this year with an aspiration to launch around 50 in 2023. It gets better.
One of SpaceX's core brand missions is to make rocket flights reusable or at least the first stage so when the first stage is reused that cost believed to be in the region of 35 million minus maintenance overheads removed from the equation makes Musk's business suddenly seem very profitable. To put that into context, one particular Falcon 9 first stage rocket recently completed its seventh mission so even with SpaceX offering deep discounts on second-hand rocket flights a snipper 50 million dollars a launch that's still over 100 million dollars in profit generated over the life of that one rocket so far.
SpaceX doesn't just serve bland terrestrial communications companies, it also holds lucrative contracts to place us government satellites and top secret US Air Force hardware up there too. The extra security and complexity of these missions is reckoned to add something like 20 million dollars to the price tag of each launch. Just think back to last month when humans were delivered safely to the ISS on a SpaceX craft.
Talk about high value payload these profit margins don't happen by accident. By all accounts bosses at SpaceX headquarters in Hawthorne Los Angeles run a tight ship as recently as 2019 a good year by the company's standards some 10 of the company workforce was laid off in a brutal cost cutting exercise and in a telling anecdote that's gone down in SpaceX folklore. Engineer Steve Davis apparently once asked Elon Musk to sign off on a 120000 quote for a component manufactured by an outside supplier. Musk is said to have laughed Davis out of the room telling him he had five thousand dollars to make one himself in-house. Davis went away and indeed figured out how to make the same component for just three thousand nine hundred dollars.
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Still however lean, mean and hyper efficient SpaceX gets and however many third-party satellites it gets into orbit, it doesn't account for Morgan Stanley's 100 billion dollar valuation. So where's the rest of that money set to come from?
Part of the answer is already over our heads. Musk's Starlink satellite program, a network of orbiting SpaceX satellites that will broadcast high-speed internet to presently unreachable regions of the globe is predicted to be a huge money spinner over the coming years as with everything space related. It's pricey at first Musk himself has estimated the cost of getting a functioning array of several thousand such satellites into orbit with supporting ground infrastructure to be around 10 million dollars however predicted revenues with users paying $99 a month are set to exceed 30 billion dollars as soon as the year 2025.
Morgan Stanley goes still further suggesting that if SpaceX is able to secure just 10 of projected growth in worldwide broadband take up over the coming years its Starlink business alone will soon be worth a whopping 52 billion dollars. No wonder private investors are already queuing around the block at Hawthorne for a piece of Starlink action. Google parent company Alphabet is one such benefactor with an estimated 900 million dollar stake beyond the bread and butter low earth orbit haulage missions and the coming revolution in how we go online. Future SpaceX ventures might yield even more profit. Space tourism is just on the cusp of feasibility with tickets currently changing hands for 50 million dollars a pop and the first flight set to occur as early as late next year and when the next generation SpaceX craft excitingly named Starship starts flying regular missions as early this year, they'll be even better still at carrying lucrative payloads into orbit.
Also Read: Elon Musk Plan to Colonize MarsExplained in Detail
There's also the exciting prospect of point-to-point orbital travel between destinations on earth though still very much on the drawing board any business that can potentially get you from New York to Singapore in around half an hour should be quite the money spinner.
Of course there's also Mars when it's difficult to see exactly what shape the Martian economy will take, there's likely to be a significant first mover advantage for Elon Musk and his company and a hefty payday hot on the heels of that beyond Mars who can say.
For now SpaceX keeps its financial details close to its chest partly to prevent prying eyes from questioning the wisdom of Elon Musk's ultra expensive R&D habit but who can argue with a company that makes a fortune even as it sets mankind up for our ultimate destiny among the stars.
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