In the 16 years since Elon Musk’s SpaceX Exploration Technologies Corporation – SpaceX – was founded, the company has transformed the commercial space market. It has proven that launch services can be provided at far less cost than previously thought.
It has demonstrated that rocket stages can be successfully reused. And it has repeatedly accomplished feats no commercial company would have contemplated in the past.
No doubt about it, SpaceX is a pioneer. But pioneers do not always come to a good end. The life of Nikola Tesla, the inventor and futurist for whom Musk’s other great enterprise is named, offers an example of how even geniuses can lose their way in the jungle-like landscape of infant industries. Elon Musk’s SpaceX has changed the world, but the jury is still out on whether it has a sustainable business model.
That may be one of the reasons why Musk has not taken SpaceX public – even though analysts estimate its value as high as $28 billion. The publicly stated reason is that Musk doesn’t want outsiders mucking around in his plans to send astronauts to Mars, as a prelude to establishing a permanent colony there. It’s an inspiring vision, but public or private, there are some serious challenges that the company will need to overcome first.
What follows, in descending order of severity, is my list of the five most important challenges SpaceX will need to address in the near term – long before humans ever walk on the Red Planet. I should mention up front that I have business ties of one sort or another to several of Musk’s competitors, most notably Boeing and Lockheed Martin. But this story isn’t about them, it’s about the structural challenges SpaceX faces as an enterprise.Today In Aerospace & Defense
A Dragon spacecraft built by SpaceX approaches the International Space Station with cargo.WIKIPEDIA
Commercial market stagnation. The global market for commercial space launches is not big. Bryce Space & Technology, an analytic outfit, figures it is around $6 billion annually. SpaceX has come to dominate that market by offering cut-rate prices for placing communications satellites in geosynchronous orbit – the orbit that enables them to remain above a specific point on the Earth’s surface even though they are traveling at thousands of miles per hour, because they match the rotation of the planet.
Although SpaceX claimed nearly half of the market last year, demand for geo satcom launches has stagnated. After averaging 17 per year between 2003 and 2015, demand went into a swoon in 2016. The average for the last three years is eight launches per year. Arianespace, SpaceX’s biggest launch competitor in the commercial market, says it needs ten per year just to remain viable. Lower demand is widely viewed as the “new normal,” which is why suppliers are beginning to bail. But the number of launch providers, particularly state-backed providers, is growing. Something has to give.
Military market access. The U.S. Air Force, which manages national-security space programs, recently awarded development contracts for a new generation of launch vehicles. There were four competitors, and SpaceX was the only company that didn’t get an award. This must have been a bitter disappointment for Musk, who struggled for years to get military launch certification of SpaceX’s workhorse Falcon 9 rocket. It seems the Air Force was not as impressed with plans for a successor to Falcon 9 as it was with the plans of other offerors.
SpaceX can still compete in the second phase of the program, but it looks like the government will not be funding development of a new launch vehicle or rocket engine for SpaceX. That vehicle, previously known as the Big Falcon Rocket, is pivotal to SpaceX’s plans for the future – a fact reflected in its new name, the “Super Heavy Starship.” It would be the biggest rocket ever built, suitable for supporting manned missions to Mars, but the Air Force apparently was looking for something more prosaic – like an upgraded Falcon 9. I asked SpaceX last week how it intends to remain viable in the national-security segment of the launch business. It didn’t respond.
Civil space safety. NASA Administrator James Bridenstine went ballistic when he heard that Elon Musk had smoked marijuana on a podcast, and ordered a safety review of the two companies that have contracts to carry astronauts to the International Space Station beginning next year (the other is Boeing). Bridenstine has reason to be nervous, because U.S. astronauts have been hitching rides on Russian rockets since the Space Shuttle was retired in 2011. Elon Musk’s SpaceX His tenure at the space agency will be judged first and foremost by how the transition of astronauts back to U.S.-made launch vehicles and spacecraft fares.
The safety review of the two companies’ internal operations will cover “everything and anything that could impact safety,” according to NASA’s Associate Administrator. The space agency’s safety advisory panel emphasized in its 2017 annual report that “NASA should expect both providers to exhibit a safety culture appropriate for human space flight.” It is hard to know all the items a review might consider before the review has begun, but cultural factors can influence design choices, operational behavior, receptivity to risk and other matters bearing upon astronaut safety. For instance, SpaceX is the only launch company that proposes to fuel its rockets while astronauts are on board. That might be interpreted as a cultural inclination to accept greater risk than is deemed prudent.
Weak enterprise profitability. Media coverage of a somewhat murky debt placement by SpaceX last month revealed that the privately-held company generates about $2.5 billion in revenues annually, and in the 12 months ending in September, it produced $270 million in earnings before interest, taxes, depreciation and amortization. However, a Bloomberg account of the debt placement noted that the company included pre-payments by customers in its earnings calculations while excluding some research expenditures. Without those adjustments, it said, the company would have sustained a loss.
This is not so surprising, because Elon Musk’s SpaceX strategy has been to dominate the launch market by offering lower prices than any competitors. Cut-rate prices mean thin margins, even after factoring in Musk’s vertical-integration business strategy (which is supposed to minimize costs). However, if the company can’t generate respectable margins during its peak year of launch activity – 20 launches so far in 2019 – how much prospect does it have of ever making real money? Musk says SpaceX isn’t about making money, it’s about going to Mars, but that brings me to one final, existential challenge.
Oversized capital requirements. Going to Mars is expensive. It requires all sorts of costly equipment that doesn’t currently exist, starting with that big successor to the Falcon 9 launch vehicle. Elon Musk’s SpaceX was hoping that the Air Force would help foot the bill for developing its Super Heavy Starship (capable of lifting a hundred astronauts at once), but the outcome of the recent military launch competition would appear to preclude that. So SpaceX will have to generate the necessary funding internally or seek outside financing.
Meanwhile, the company is embarked on a plan to orbit 7,500 small satellites in a constellation capable of providing broadband Internet service pretty much anywhere on Earth. That might one day offer SpaceX big revenue opportunities outside the launch arena, but in the near term it demands lots of investment funding. The risks are hard to quantify, but huge – so huge that other companies with far greater resources have elected not to pursue such a project. If SpaceX were generating the kinds of returns typically associated with a successful tech company, the financial burden might be bearable. But it seems that SpaceX’s investment plans are out of sync with the company’s ability to raise the necessary capital.
Anybody who has followed the SpaceX saga to this point knows it would be foolish to discount company plans. Elon Musk is disciplined and driven, dedicated to a vision of mankind’s future in space. But when you consider the scale of challenges SpaceX faces, it’s hard to escape the conclusion that some adjustments in the vision are going to be necessary.
Originally Publish at: https://www.forbes.com/