September 12, 2018

Breakingviews: Elon Musk is Even Higher on Space than Cars

by Fathom Consulting.

Elon Musk is even higher on space than cars. Having already captured two-thirds of U.S. rocket launches, the entrepreneur plans a massive boost to SpaceX’s capacity. Unlike Tesla, there’s no public market pressure. But Musk is gambling the $28 billion firm can slash prices and spur demand for satellite-based internet service.

On Monday SpaceX put a communications satellite in orbit with its 16th successful launch of 2018; it hopes to do a dozen more before the end of the year. That would be about 50 percent more than last year. Upping that pace will be hard, though. The firm’s backlog is shrinking and demand for lofting big geosynchronous satellites has probably peaked. Its reusable rockets have also been driving down prices. Global commercial-satellite launch revenue fell 16 percent in 2017 to $4.6 billion, estimates the Satellite Industry Association.

Yet Musk is determined to thrust ahead to the next stage. SpaceX is developing its next-generation BFR (Big Fucking Rocket) which, in a few years, should be able to carry over 10 times as much cargo as its workhorse Falcon 9 to low-earth orbit. He plans to use that muscle to send more than 4,000 satellites into low-earth orbit to provide internet access, which the company reckons can be a $30 billion business.

Teledesic had similar ambitions in the 1990s, and backing from the likes of Bill Gates, only to go bust. Electronics advances have made today’s satellites more capable for a fraction of the cost, though. Musk is betting that SpaceX’s expansion will drive launch prices down sharply too, and generate a massive new market in the same way that investment in cellular networks helped mobile phones take off. Morgan Stanley estimates satellite broadband alone could be worth nearly $800 billion in 30 years – more than twice the market for all space activity today.

SpaceX isn’t alone, though. ULA, the joint venture between Lockheed Martin and Boeing, is continuing to compete aggressively for launch business, as are foreign rivals. Google parent Alphabet plans to begin offering internet service from balloons high in the stratosphere as early as next year. And Jeff Bezos’s startup, Blue Origin, and dozens of smaller firms are attempting to break into the space race for tourism and other purposes.

All of which suggests that meaningful profitability for SpaceX, just like Tesla, may remain over the horizon.

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