How Will SpaceX Actually Make Money?

[Geschosskopf]

I know the basic theory: by re-using its rockets, SpaceX hopes to have much lower launch costs than companies using disposable rockets, thereby attracting more business and making up its sunk costs in volume. But how likely is that actually to work out in the end? I've always been a bit skeptical of the whole concept but I'm not all that familiar with the details, so I'm hoping somebody more knowledgeable can shed some light on this.

Here are the economic parameters of the situation as I understand them. Please correct me if I'm wrong:

* SpaceX of course designs and builds its own rockets, as do its competitors. However, some of its competitors are using off-the-shelf components while SpaceX is all custom. So even without the landing system, SpaceX spends more on basic rocket design and production per rocket.

* In addition, SpaceX wants to reuse a few rockets repeatedly instead of continually building new ones. Therefore, it cannot use mass production and assembly lines to reduce unit production costs.

* SpaceX has invested huge amounts in R&D for its booster landing system, an expense its competitors don't have.

* The mass of the landing system is such that SpaceX rockets need, IIRC, about 20% more dV than a disposable rocket to launch the same payload to the same orbit. This means that a new SpaceX rocket will cost at least 20% (and almost certaily somewhat more) than a comparable disposable rocket, without even considering the sunk cost of the landing system R&D and it being all custom.

* SpaceX also has higher operating costs per rocket. While its competitors just build and launch, SpaceX also (tries to) land and refurbish. So that's extra cost per launch in terms of parts and labor, plus transportation, administration, and other incidental expenses.

* If you spread the R&D cost over the number of SpaceX rockets built, then a SpaceX rocket is ludicrously expensive compared to a disposable rocket, on top of being more expensive to design and build,"over-engineered" for the payload it carries, and more expensive to operate per vehicle.

* The only ways to reduce the per-rocket cost of SpaceX is for it either to build more rockets, or to reuse the few it has so many times that, over the long run, eventually its competitors will spend more bulding new rockets than SpaceX already has. The 1st isn't an option for SpaceX because it rather defeats the purpose of reusable rockets. The second is totally dependent on the volume of business SpaceX can generate.

* Nobody in the commercial rocket business does much volume because there isn't that much stuff going to space. SpaceX hopes to grow the civilian side of the space market by offering much cheaper rides (the "if you build it, they will come" theory), but AFAIK there isn't a huge crowd of stuff already waiting impatiently on Earth for an affordable lift, so I doubt the existence of such will increase the market size significantly. On the government side, various laws and policies dictate a more-or-less equal share to outside contractors. Thus, SpaceX will probably always have essentially the same slice of the same pie it currently has.

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To me, this paints a rather bleak picture. Because its rockets are unavoidably so expensive relative to the competition, SpaceX must be operating at a considerable loss per rocket, despite it claiming a net positive cash flow from contracts and recent investments by Google and Fidelity. IOW, it's highly leveraged and keeps delaying an IPO. There are also several elephants in the room:

1. Market Size

As already mentioned, SpaceX necessarily depends very heavily on a high volume of business, much higher than currently exists. Will the market grow enough to sustatin it? Apart from communications and weather-related satellite companies, who on Earth really needs to go to space? Unless there's something with huge consumer demand on Earth than can only be produced in space, I just don't see the launching business growing just because getting to space suddenly becomes (relatively) cheap.

2. Whether Refurbishing Will Really Work

This of course assumes boosters can be landed successfully, but I figure SpaceX will get that part eventually. However, the only previous example of a reusable space vehicle, the Shuttle, cost so much to refurbish, despite decades of striving for improvement and 136 launches to spread costs over, that it would have been cheaper just to use disposable rockets. This was, in fact, known up front but at the time the Shuttle came along, the only way to get Congressional funding for space at all was to sell the know-nothing politicians on the chimera of reusability. Whether SpaceX can do any better is possible but seems unlikely. Either way, at present the viability of the entire SpaceX concept is still a huge unknown.

3. Possible Losses of Contracts

SpaceX tauts that it has contracts worth billions for many future launches, but surely these contracts, like all others, contain penalty and revocation clauses. A run of bad luck, or discovering that some engineering obstacles take more effort to overcome than anticipated, could well result in loss of business. Then what?

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So at the bottom line, I don't see a rosy future for SpaceX's current business model. I figure that the most likely outcome is that SpaceX will eventually, like others before it, abandon the idea of reusable rockets as economically untenable and become just another rocket company. Junking the landing capability will allow bigger payloads and reduce the cost per rocket, but the money sunk chasing after reusability will never allow it to charge drastically lower prices than its competition, and probably not lower at all.

Is there any reason to think otherwise?

[tater]

Good points. Tesla is another model to follow (and doesn't look good), which is bleeding out money with every car they sell.

[mardlamock]

I for one agree with most of what you said. I think they should dump their current 2 stage model and go for a vertical takeoff SSTO using a modified falcon 9's first stage, the lowered complexity thanks to no staging events and only using one set of engines would lead to a significant decrease in prices. Maybe the could get reusability in that SSTO too, idk though.

[MinimumSky5]

I for one agree with most of what you said. I think they should dump their current 2 stage model and go for a vertical takeoff SSTO using a modified falcon 9's first stage, the lowered complexity thanks to no staging events and only using one set of engines would lead to a significant decrease in prices. Maybe the could get reusability in that SSTO too, idk though.

A fully rocket powered SSTO would be ludicrously expensive and wasteful, as the stage would have to be huge to contain enough fuel. That's why rockets stage in real life, they can shed the weight of the extra fuel tanks and swap to more vacuum optimised engines.

[RainDreamer]

Space X does a lot of manufacturing in house though, cutting overhead costs comparing to its competitors, which out source that process to contractors and subcontractors.

As for who would want to go to space...Well, reccently a Japan soft drink company just hired them to put their ad on the moon.

[NovaSilisko]

I for one agree with most of what you said. I think they should dump their current 2 stage model and go for a vertical takeoff SSTO using a modified falcon 9's first stage, the lowered complexity thanks to no staging events and only using one set of engines would lead to a significant decrease in prices. Maybe the could get reusability in that SSTO too, idk though.

I'm sure, by playing KSP, you know far more about these things than the hundreds/low-thousands of people they've had working on it for several years now to determine that this is the best way to proceed for reusability and low-costs... in any case, be wary of the SSTO hype train, it's laughably easy in KSP and laughably difficult in real life.

SpaceX already makes a profit on some level. They sell flights on their rockets for more than what the rocket costs to build and fly. Reusability is just a bonus, all told - it will reduce their costs more. Now, there's always the possibility they don't lower their launch prices with that, and enable themselves to make even more profit...

[Nibb31]

Your analysis is pretty good.

SpaceX has already drastically reduced the cost of rockets through streamlined processes and vertical manufacturing. However, the law of diminishing returns applies here: the big efficiency improvements are easier, but the further you go, the harder it gets to shave off more efficiency.

SpaceX is a pragmatic company. They experiment a lot. If it works, they'll do it. If it doesn't, they'll try something else. They have accumulated a lot more failures and abandoned projects in less than a decade of existence than other aerospace companies, which is arguably something that can be admired. I have no doubt that they will eventually return a rocket stage. I'm not 100% sure they will be able to reuse that rocket stage. I'm even less sure that it makes economical sense to do so, when their whole business model is based on vertical manufacturing and economies of scale. Reusing rockets decreases your production volume and actually makes each stage more expensive to produce. And in this business, a 50% reduction on the price of the offering doesn't automatically generate a 100% increase in market demand.

We will simply not know if reusability works as a business model until somebody tries. That is why all the other rocket manufacturers are pretty much sitting back and watching.

I for one agree with most of what you said. I think they should dump their current 2 stage model and go for a vertical takeoff SSTO using a modified falcon 9's first stage, the lowered complexity thanks to no staging events and only using one set of engines would lead to a significant decrease in prices. Maybe the could get reusability in that SSTO too, idk though.

Since when has SSTO been less complex? You are aware that for a given payload, SSTO actually increases the size and weight of a rocket, aren't you? If the Falcon 9 was single stage, it would actually need more engines, not less.

Edited August 19, 2015 by Nibb31

[Mazon Del]

Some of the points you bring up are likely not as...efficiently costly as you might think them to be. Yes SpaceX is devoting a crapton of money and effort into their R&D on the rockets and that cost will end up eating into their profits. But remember, every rocket has gone through that to some extent or another, it's largely just a question of accounting to find out how it got balanced. ULA sort of cheats and tries to get the government to pay the R&D costs of everything it does, and then once the rocket is done they base their prices as though assuming they need to recoup the R&D costs. *eye rolls*

One test that could likely give a good idea about how well a refurbishment program would work, that I am not certain if SpaceX has done or not (I assume they've done things that are "close enough" for now) is basically rig up one of their rockets for the static fire tests and let it go through the motions of rocket use, fuel burnout, stage separation (which incidentally does not include explosive bolts, SpaceX uses some form of piston, hydraulic I believe), etc. Then try to refurbish it. It won't be as good of a test as having a real rocket, but it would give them a good idea of the costs involved. I "think" I read somewhere that SpaceX is hoping for something like being able to reuse a given rocket up to 10 times before retiring it, but that could just be a misremembered misquote.

And finally again, it should be brought up that at the end of the day, SpaceX making money is mostly just a consequence/side benefit of why Musk created the company in the first place, which is to build rockets to colonize Mars. He's said time and time again that if he has to, he'll fund it with the billions he has in pocket, and later once they get the Mars Colonization System (I forget it's actual acronym up, but the rocket that can lob 100 people to Mars).

Tesla was constructed in a similar vein, though with more of a hope of profitability. He thought electric vehicles were needed, we just needed to stop having terrible ones. So he made a company to make awesome ones. Turns out, he says that if they could pack the things as filled with batteries as he'd like, they could easily have a 500 mile range. Problem is that with the cost of lithium batteries, that would make it WAY too expensive. Luckily, the gigafactory alone will more than double the world production of lithium batteries, so he estimates the price should drop by about 30%.

[mardlamock]

SpaceX has already drastically reduced the cost of rockets through streamlined processes and vertical manufacturing. However, the law of diminishing returns applies here: the big efficiency improvements are easier, but the further you go, the harder it gets to shave off more efficiency.

SpaceX is a pragmatic company. They experiment a lot. If it works, they'll do it. If it doesn't, they'll try something else. I have no doubt that they will achieve their goal of returning a rocket stage. I'm not sur sure they will be able to reuse that rocket stage. I'm even less sure that it makes economical sense to do so, when their whole business model is based on vertical manufacturing and economies of scale. Reusing rockets decreases your production volume and actually makes each stage more expensive to produce.

We will simply not know if reusability works as a business model until somebody tries. That is why all the other rocket manufacturers are pretty much sitting back and watching.

Since when has SSTO been less complex? You are aware that for a given payload, SSTO actually increases the size and weight of a rocket, aren't you? If the Falcon 9 was single stage, it would actually need more engines, not less.

Staging events are the most critical event in any rocket launch. Read this http://exoscientist.blogspot.com.ar/2013/11/the-coming-sstos-falcon-9-v11-first.html

[_Augustus_]

SpaceX makes money by forcing Airbus and ULA to have re-usability as well. They also do have customers such as the DOD (Which likes SpaceX because it's all-American, no Russian-built RD-180's) and that drink company.

Also for the record that ad is flying with a Google Lunar XPrize rover...

And about the SSTO, I think the guy means removing the 2nd stage from a Falcon 9, so the rocket is 100% re-usable. It would have less of a payload capacity but it would be re-usable.

[mardlamock]

A fully rocket powered SSTO would be ludicrously expensive and wasteful, as the stage would have to be huge to contain enough fuel. That's why rockets stage in real life, they can shed the weight of the extra fuel tanks and swap to more vacuum optimised engines.

What makes you think that? An old Atlas with modified engines could take a considerable payload into orbit. Besides, only having to use the same set of engines reduces costs a lot, if you look at the numbers, the motors take a really significant chunk of the total launch cost. The dry mass to payload ratio is also significantly lower for SSTO's than for regular multi stage vehicles, that means that for each kg of payload you need less rocket.

- - - Updated - - -

SpaceX makes money by forcing Airbus and ULA to have re-usability as well. They also do have customers such as the DOD (Which likes SpaceX because it's all-American, no Russian-built RD-180's) and that drink company.

Also for the record that ad is flying with a Google Lunar XPrize rover...

And about the SSTO, I think the guy means removing the 2nd stage from a Falcon 9, so the rocket is 100% re-usable. It would have less of a payload capacity but it would be re-usable.

Yup, thats what I am talking about.

Edited August 19, 2015 by mardlamock

[cryogen]

I for one agree with most of what you said. I think they should dump their current 2 stage model and go for a vertical takeoff SSTO using a modified falcon 9's first stage, the lowered complexity thanks to no staging events and only using one set of engines would lead to a significant decrease in prices. Maybe the could get reusability in that SSTO too, idk though.

It's not possible for a Falcon first stage to do that, both because the delta-v is too low (kerosene's Isp is too low), and because it's too fragile to survive reentry. (The reusable stages only reenter at a gentle 2.0 km/s).

You can look up the stage masses here.

[kujuman]

I think one false assumption touching all aspects of the OP is assuming that a rocket has a set cost to design/build/operate, no matter which company is doing it. That's just not the case--corporate structure can have a huge impact on costs. For SpaceX, part of this means younger engineers (less salary, more hours/year, lower non-salary compensation) and building strong enthusiasm in the workforce.

However, some of its competitors are using off-the-shelf components while SpaceX is all custom. So even without the landing system, SpaceX spends more on basic rocket design and production per rocket.

Even if SpaceX were to design 100% from scratch vs using 100% COTS, that's not enough to prove that a custom design's costs are necessarily higher. A fully custom design means one might have to design a part, but one doesn't need to design *around* a part (assuming they can change it). If they can save a few hundred kgs per stage this way, they've designed a higher performance rocket than they otherwise could have, without needing to design a new engine or add more of them. Even if a SpaceX rocket costs more to design than it otherwise *could*, it may still very well be cheaper to design than another company building to the same specs.

* In addition, SpaceX wants to reuse a few rockets repeatedly instead of continually building new ones. Therefore, it cannot use mass production and assembly lines to reduce unit production costs.

The key to mass production isn't volume, it's maximizing the use of machinery and specialized workers. Let's say that a special machine is needed for 50 hours per F9--to maximize use of that machine, you'd want to build ~50 F9s per year (allowing for maintenance, not assuming continuous production, contingency time, etc.) A traditional mass production scheme would see 50 F9s built so as to not leave the machine just idle and costing the company; it's possible to instead design the vehicle so that you need that machine for 100 hours per F9 (and presumably *not* needing a second type of special machine). In this second way, full mass production only requires 25 F9s to be built per year to not let the machine be idle. This is obviously an oversimplification, but if you can think about it in terms of mass producing *parts* on the F9 and not mass producing the *whole* F9, it should be more clear (one of the reasons there are 10 Merlin engines on a F9 and not, say, an F1 and a Merlin). The factory is designed to be most efficient at building some number of F9s/year; you can build more or fewer, but the vehicle costs will go up.

* The mass of the landing system is such that SpaceX rockets need, IIRC, about 20% more dV than a disposable rocket to launch the same payload to the same orbit. This means that a new SpaceX rocket will cost at least 20% (and almost certaily somewhat more) than a comparable disposable rocket, without even considering the sunk cost of the landing system R&D and it being all custom.

* SpaceX also has higher operating costs per rocket. While its competitors just build and launch, SpaceX also (tries to) land and refurbish. So that's extra cost per launch in terms of parts and labor, plus transportation, administration, and other incidental expenses.

* If you spread the R&D cost over the number of SpaceX rockets built, then a SpaceX rocket is ludicrously expensive compared to a disposable rocket, on top of being more expensive to design and build,"over-engineered" for the payload it carries, and more expensive to operate per vehicle.

While it's probably true that SpaceX could lower costs somewhat by just focusing on lowest possible cost disposable rockets, their listed launch prices are already pretty low compared against competitors. SpaceX probably figures they can't keep as large a cost advantage forever (the workforce will age, it won't be *as* glamorous to work there, meaning higher compensation costs), so getting into the reusability game ​first will help them maintain some lead in the medium term.

[Frida Space]

Just to be clear, it isn't as simple as saying, 'I've used this rocket twice, so I paid half'. Reusable rockets are by definition more expensive than expendable ones. To start saving some money you have to reuse a rocket at least 7 times. To start getting a real profit, at least 14, if not more. That means, if you reuse a rocket six times and then at the seventh flight it fails the landing, it will all be money wasted. I consider myself somewhat of a Musk fanboy but I prefer ULA's S.M.A.R.T. reuse system.

[Bill Phil]

Counterfeiting, obviously.

Seriously, though, I don't know.

[Mazon Del]

Where are you getting the 7-14 times reuse from?

[FishInferno]

You guys also forget the satellite network that will broadcast internet. Musk has said that this will be a main source of funding for Mars.

On a side note, this doesn't really address your question, but this article is a very good read

http://waitbutwhy.com/2015/08/how-and-why-spacex-will-colonize-mars.html

[Kryten]

You guys also forget the satellite network that will broadcast internet. Musk has said that this will be a main source of funding for Mars.

Roughly the same for most operators, the satellite operation and manufacturing industries are much more lucrative than launch in general: the launch business is mostly to stimulate the sat business.

[Frida Space]

Where are you getting the 7-14 times reuse from?

ULA did that calculation. They might have exaggerated it a bit to show SpaceX's fallacy, but if you do your own calculation based on the data SpaceX provides, you obtain similar results.

[Geschosskopf]

I think one false assumption touching all aspects of the OP is assuming that a rocket has a set cost to design/build/operate, no matter which company is doing it. That's just not the case--corporate structure can have a huge impact on costs. For SpaceX, part of this means younger engineers (less salary, more hours/year, lower non-salary compensation) and building strong enthusiasm in the workforce.

I used to be a manufacturing engineer in the aerospace industry and I can tell you there's no great difference in how any of those companies operate. The whole industry is totally incestuous in that Company A loses some contract so lays off workforce, while Company B won the contract so is hiring and picks up the refugees from Company A. Then next contract cycle, there's another such lateral migration. This has been going on forever so the culture of the entire industry has long since been totally homogenized and everybody does things pretty much the same.

Even if SpaceX were to design 100% from scratch vs using 100% COTS, that's not enough to prove that a custom design's costs are necessarily higher. A fully custom design means one might have to design a part, but one doesn't need to design *around* a part (assuming they can change it). If they can save a few hundred kgs per stage this way, they've designed a higher performance rocket than they otherwise could have, without needing to design a new engine or add more of them. Even if a SpaceX rocket costs more to design than it otherwise *could*, it may still very well be cheaper to design than another company building to the same specs.

If you design your rocket around existing engines (IOW, like in KSP), then you obviously save a LOT compared to somebody who has to design a new engine from scratch. The new engine has to be designed, prototyped, tested, revised, tested some more, and finally go through a certification process before it can be used in testing and certifying the whole rocket itself. This is why using off-the-shelf components is cheaper than total custom.

The key to mass production isn't volume, it's maximizing the use of machinery and specialized workers. Let's say that a special machine is needed for 50 hours per F9--to maximize use of that machine, you'd want to build ~50 F9s per year (allowing for maintenance, not assuming continuous production, contingency time, etc.) A traditional mass production scheme would see 50 F9s built so as to not leave the machine just idle and costing the company; it's possible to instead design the vehicle so that you need that machine for 100 hours per F9 (and presumably *not* needing a second type of special machine). In this second way, full mass production only requires 25 F9s to be built per year to not let the machine be idle. This is obviously an oversimplification, but if you can think about it in terms of mass producing *parts* on the F9 and not mass producing the *whole* F9, it should be more clear (one of the reasons there are 10 Merlin engines on a F9 and not, say, an F1 and a Merlin). The factory is designed to be most efficient at building some number of F9s/year; you can build more or fewer, but the vehicle costs will go up.

This isn't true in the aerospace industry. Fabrication of parts in the machine shop isn't what kills you, it's all the manual assembly time.

Parts fab is highly amenable to automation, whether you're talking milling machines, hydraulic presses, composite panel fabricators, painting robots, etc. All these things need is a small staff of CNC programmers and otherwise minimal human intervention. And once you buy such a machine, you've spent that money and won't spend much more on the machine ever again whether it runs or not. It's a fixture of your plant just like the building it sits in. So these machines make batches of the same parts so as to minimize set-up changes. This is a relatively fast process and usually runs well ahead of assembly. Because of this, you can get by with a few general-purpose machines that can make all your many different parts in batches synched with the order of need by assembly.

But all these parts have to be assembled into subassemblies and finished products, and this is not very suitable to automation. So people put all the parts in jigs, fasten them together, run the wiring and plumbling, etc. Certain aspects of this can be automated, at great expense, but the bulk of it will always remain manual. And therefore slow, much slower than parts fab. There are only 2 ways to speed up assembly: 1) overtime and/or running multiple shifts (which means a MUCH higher payroll expense) and 2) learning curves. But learning curves only have effect if the same people keep doing the same thing over and over without much gap in between. IOW, high-volume or mass production. If you have staff turnover, or a significant break in production, then you lose all or most of the progress you've made towards reducing assembly time.

In the peacetime aerospace industry, the volume of product required in a given period of time is hardly enough to keep 1 shift busy. It's even worse in the rocket industry. Therefore, overtime and extra shifts are only used as emergency measures, trading budget for schedule to overcome previous delays, and then only in cases where the penalties for missing delivery dates are worse than the added manpower expense. After all, the extra staff of migrant workers brought in temporarily for a 2nd shift has no prior experience on the project so is starting at the beginning of the learning curve and thus gives you rather less than a 100% increase in assembly speed.

Therefore, the objective in efficient assembly is to keep 1 shift working continuously enough to get the benefit of the learning curve. This saves you both time and money because you have to have at least 1 shift anyway, and the faster this shift gets, the fewer manhours on the clock needed per product and the less likely it is that you'll have to resort to overtime. But this only happens if you keep building stuff. If you don't build very much stuff very often (as with a small fleet of reusable rockets), then you'll never get any learning curve benefit and your production costs will always remain nearly as high as for building the 1st prototype. OTOH, if you're making a constant stream of disposable rockets, your costs get lower with each one due to less manhours spent building it.

While it's probably true that SpaceX could lower costs somewhat by just focusing on lowest possible cost disposable rockets, their listed launch prices are already pretty low compared against competitors. SpaceX probably figures they can't keep as large a cost advantage forever (the workforce will age, it won't be *as* glamorous to work there, meaning higher compensation costs), so getting into the reusability game ​first will help them maintain some lead in the medium term.

You've kinda got this backwards, as indicated above. A veteran workforce is what you want, and the workers in the industry know this. And there's nothing really glamorous about working in a factory, no matter what it makes. I worked on the B-2 stealth bomber and even that soon became just another day at the office.

As to prices, SpaceX cannot have competitive prices without willingly taking a huge loss on each launch, due to the all the money they've spent on R&D and the low-volume, custom production lots that reusability implies. This is not a strategy for the short- or medium-term, but only the long-term. The assumption is that when (or if) they perfect rocket recovery, and IF refurbishing turns out to be VERY significantly cheaper than bulding a new rocket, then they will no long have much in the way of production costs, mostly just operating expenses. These will be somewhat more per rocket than the competition, but within the same ballpark, so at that point, they essentially stop spending money relative to the competition. Meanwhile the competition continues to spend money on building disposable rockets, so eventually they catch up with whatever money SpaceX has already spent. The longer it takes SpaceX to land boosters reliably, and the more expensive refurbishing turns out to be, the further into the future this break-even point will be.

I'm guessing that day is already so far into the future that it might as well never happen. BUT, the technology developed along the way would be a very valuable product in its own right, assuming it actually can be made to work. So, it could well be that SpaceX's real plan is to sell this technology to its competitors, thereby recouping the development costs, and getting out of the launcher business itself except for Musk's personal projects like going to Mars. Either that or SpaceX will decide it can't be made to work in an economically viable manner and just give up on reusability. At which point it will have to eat the cost of trying.

You guys also forget the satellite network that will broadcast internet. Musk has said that this will be a main source of funding for Mars.

There's already a satellite network that broadcasts the internet. I'm using it right now to post this because I live in the sticks where it's not economically viable for the landline companies to provide service. So from what I can tell, the proposed Google thing is just an expansion on what we already have, with a possible increase in bandwidth.

If Google plans to do this, why hasn't it already? AFAIK, it's because the proposed constellation would require so many satellites that launch costs at current pricing would be too high even for Google. Therefore, Google is banking on reusability actually working and significantly reducing launch costs, so it can buy more satellites. I'm sure there's a clause in the contract that says the deal's off if SpaceX can't deliver on the lower prices.

If SpaceX can deliver on drastically lower prices, then Google wins whether SpaceX does the launches or just sells the technology. It gets its constellation at the price it wants either way, and because Google now owns part of SpaceX, it would also get part of the revenue from any technology sale. Which makes me think selling the technology is the real plan.

But damn, that's a huge gamble. Nobody yet knows if SpaceX can pull it off. If history is any guide, it won't work. And if it does, odds are it won't make for nearly as big a savings as predicted. In either of those events, I doubt SpaceX will remain in business.

[Frozen_Heart]

Per individual rocket, SpaceX spends a lot less than other companies to produce and launch them, which is why the launch prices are so low. I agree I don't know where all the money for r&d comes from Though.

I know atm they are talking about a space internet using about 4000 satellites. While this would produce plenty and launches for reusability to become viable, I'm not convinced that it can compete with regular ground based internet.

The reason I like SpaceX so much though is because they are prepared to try these new things and take risks. That's how progress is made and its something that the other companies just don't do. Yes many things might not work but its worth trying them to find out.

[Torquemadus]

It may seem odd that SpaceX rockets are so cheap, and that SpaceX can afford to do so much R&D. How can they afford to do this?

The current EELV family is derived from ICBMs that were developed during a cost-unconstrained Cold War arms race. High launch costs meant that no expense could be spared to make satellites as reliable as possible. Satellites became so expensive that booster costs became inconsequential by comparison. High costs also meant that there were fewer commercial launches, meaning that fewer boosters were being produced.

In addition, a contracting system called "cost plus" was introduced. The rationale was that corporations must not be allowed to earn great profits from government contracts. Therefore instead of submitting a fixed price bid for a contract, corporations must document their internal costs in great detail and then charge a fixed percentage on top of that as profit. Under this system, the overhead staff who document these costs greatly outnumber the staff who do the actual work! Since the corporations get a fixed percentage of the total cost as profit, they have an incentive to keep costs as high as possible.

By contrast, SpaceX have every incentive to make their rockets cost as little as possible. One way they have achieved this is through strict control of supplier costs, with everything done in-house if at all possible. Since they pay for their own R&D, they have no incentive to have high development costs. People have gotten used to aerospace being incredibly expensive, so when a company like SpaceX comes along, people are surprised that their costs are so low.

With regard to re-usability, there are questions of complexity, performance impact and processing costs. Making a rocket stage re-useable requires that it be able to withstand re-entry and include systems that allow it to land safely. The first stage of a rocket is the most massive and costly and will also take far less of a beating during re-entry. Any excess mass added to the first stage to make it re-useable will drop away during staging, so the overall performance penalty is minimised. By contrast, making the upper stage re-useable requires hauling extra mass all the way to orbit, which directly reduces the payload mass that can be lifted. Every kilogram of thermal protection system or landing gear that gets hauled to orbit is one less kilogram of payload.

The key question for SpaceX will be how cheaply they can prepare their recovered first stages for their next flight, compared to the cost of simply building new ones from scratch.

[Nibb31]

It may seem odd that SpaceX rockets are so cheap, and that SpaceX can afford to do so much R&D. How can they afford to do this?

It's not odd. A large part of their R&D was paid for by NASA.

[Kryten]

It's not odd. A large part of their R&D was paid for by NASA.

And, if you're comparing to ULA, you have to take into account that they have a very low R&D budget most of the time, as they're a joint venture and the parent companies take out most of the profit.

[shynung]

It's not odd. A large part of their R&D was paid for by NASA.

So NASA basically used SpaceX as a guinea pig for reusability, then?